Cryptocurrency still under the watchful eye of the ATO
With bitcoin prices skyrocketing, investors becoming aware of the instability of fiat currencies (AUD, GBP, USD etc) and low interest rates stemming from the economic downturn of COVID-19, the world of cryptocurrency is once again filling up social media feeds. Despite some dips, since October 2020, the value of various cryptocurrencies has seen a confident overall increase.
Recent reports that Tesla (headed by Elon Musk) invested AUD1.9 billion in bitcoin saw prices surge in value. This has only added to the hysteria and is indicative of the shift away from traditional fiat currencies to cryptocurrencies. However, we then saw prices take a dip following Elon Musk’s comments contemplating whether the coins were overpriced. Nevertheless, many people are confident prices will continue to surge.
Before diving into a cryptocurrency investment, it is important consider the disclosure requirements that are required for tax purposes. While discussions surrounding cryptocurrency often revolve around its anonymity, many people do not realise the various tax consequences that need to be considered.
So what does the ATO really know about your current holdings and what do you need to disclose?
What Information does the ATO have about my cryptocurrency trading?
For some time, the Australian Taxation Office (ATO) has emphasised its data matching capabilities and its priority to build and monitor a tax framework for cryptocurrency. In addition, the Commissioner gave notice in April 2019 that the ATO would commence a data matching program on cryptocurrency.
Under the program, the ATO is collecting data relating to cryptocurrency transactions from cryptocurrency designated service providers (DSPs). DSPs are entities through which individuals and businesses can buy, sell or transfer cryptocurrency holdings. This generally captures cryptocurrency exchanges that operate a business in Australia (and are governed by Australian law) - such as Swyftx and CoinSpot.
Therefore, taxpayers that are buying and selling on exchanges that operate in Australia should assume that (at a minimum) the ATO has access to the following data:
cryptocurrency sales made via an exchange and any gross profits or losses made;
the cost of cryptocurrency purchased via an exchange;
current cryptocurrency holdings with exchanges operating in Australia; and
any trades made between coins via an exchange.
In addition to providing data to the ATO, DSPs have a legal obligation to provide information to the Australian Securities and Investment Commission (ASIC) and the Australian Transaction Reports and Analysis Centre (AUSTRAC). This includes users of the DSP. It is understood that these Federal Government institutions consequently share the information with the ATO.
On 11 September 2019, the Australian Senate resolved to establish a Select Committee on Financial Technology and Regulatory Technology. As part of this process, the Senate is reviewing the regulation of cryptocurrencies and it is anticipated that further regulation and data sharing will follow.
What if my cryptocurrency is held with an overseas exchange?
If you are an Australian resident for tax purposes, you are taxed on your worldwide income. Accordingly, you must declare any foreign income in your income tax return, including overseas cryptocurrency exchanges.
To ensure taxpayers are paying the correct amount of tax, the ATO has arrangements with overseas jurisdictions to share information. This includes the Automatic Exchange of Information (AEoI) between Australia and various nations.
With this increased data sharing between countries, it is becoming more and more likely that the ATO will be alerted to income sourced from overseas cryptocurrency exchanges. Taxpayers need to consider how overseas based transactions should be treated for Australian taxation purposes and disclose them appropriately.
What information about my cryptocurrencies do I need to report in my tax return?
The exact tax treatment which applies to cryptocurrency transactions will vary depending on the specific facts of the holding. Taxpayers should familiarise themselves with the relevant rules or seek appropriate legal advice to understand their obligations.
At Harwood Andrews we understand both the cryptocurrency technology and the appropriate tax treatment. Contact one of specialists if you need assistance.
Final thoughts
While the unpredictable increases (and deceases) in the value of cryptocurrencies continue to put them in the media spotlight, it is important to remember that they are always under the watchful eye of the ATO. Taxpayers should not underestimate the compliance framework being built in Australia and globally - serious penalties can apply to non-compliance.
If you are uncertain of the reporting requirements for your cryptocurrency you can contact our tax team who have specialist knowledge in this area. We can provide you with help in relation to:
understanding the taxation of cryptocurrency and its application to you;
assessing whether you have met your compliance and reporting obligations in relation to cryptocurrency purchases, sales, or transfers;
assist with voluntary disclosures to amend incorrect tax returns previously submitted and applications for the reduction in penalties where you have not been compliant; and
the preparation of ruling applications where the tax consequences of your situation are uncertain.
For more information contact:
Rob Warnock
Principal Lawyer
T: 03 5226 8541
E: rwarnock@ha.legal
Alexander Gulli
Lawyer
T: 03 5226 8573
E: agulli@ha.legal
