The ATO’s Crypto Tracking and Data Collection Processes
Background
The Australian Tax Office (ATO) has released a statement outlining their priorities ahead of the end of financial year 2021/22, with crypto-assets being one of these priorities due to its rising popularity.
Assistant Commissioner Tim Loh says, “through our data collection processes, we know that many Aussies are buying, selling or exchanging digital coins and assets so it’s important people understand what this means for their tax obligations.”
The Australian Tax Regime for Digital Assets
The ATO does not categorise cryptocurrencies as money or foreign currency, but instead as ‘property’ and as an asset for Capital Gains Tax (CGT) purposes. Taxpayers investing in crypto may also be required to pay income tax on revenue account (without access to CGT concessions) depending on the circumstances and frequency of the relevant transactions.
Capital Gains Tax
A CGT even occurs when you ‘dispose’ of your crypto-asset, or in other words when your crypto-asset changes ownership. This can happen in the following ways:
Selling crypto-assets for AUD or another fiat currency;
Swapping crypto-assets for another crypto-asset, including stablecoins;
Spending crypto-assets on goods and services; or
Gifting crypto-assets.
There are several nuances in the ATO’s treatment with respect to CGT that you should consider and seek advice on, including the treatment of losses, gains, off-setting, and any discounts available.
Income Tax
There are also circumstances where acquisitions or disposal crypto-assets fall outside of the CGT provisions and thus will attract income tax at marginal tax rates. This is particularly relevant for traders buying and selling for short term gains, actively mining crypto through a business-like setup, or running a crypto exchange. However, it may also be relevant where the disposal of crypto-assets relates to isolated transactions entered into by taxpayers (not just traders) for the purpose of profit.
If any of these circumstances apply to you, there is likely income tax treatment to consider. But as always, it will be highly fact dependant. We also note that income tax treatment may be applicable to an investor utilising the ‘buy and hold’ long-term strategy as well as circumstances where the taxpayer is:
Paid a wage or salary in crypto;
Selling NFTs you create (as an artist);
Receiving airdrops;
Earning staking or interest rewards;
Earning referral rewards; or
Participating in play to earn games, shop to earn platforms etc. that reward you with crypto.
The ATO’s Crypto Tracking and Data Collection Processes
The ATO is able to track many crypto and digital assets rather easily.
It has been using a data-matching program focusing on cryptocurrency transactions since 2019 which allows the ATO to access data held by Australian cryptocurrency designated service providers (DSPs) to identify buyers, sellers and the related transactions. This is also able to trace transactions as far back as 2014.
If you have an account with a DSP e.g. CoinSpot, Swyftx, Binance Australia, then your data is likely already on file with the ATO, as DSPs are legally required to provide the ATO with requested information. Through the data-matching program, the ATO is able to obtain data like:
Names;
Addresses;
Phone numbers;
Bank account details;
Transaction dates;
Asset types; and/or
Transaction values.
Therefore, turning a blind eye to declaring your crypto and digital assets is not a smart idea considering the capabilities of the ATO in this space.
Key Takeaways
Assessing tax liability for your crypto holdings can seem daunting and complex. Accurate records are required and a foundational understanding of the established tax rules is a must. We understand that each client has their own unique circumstances and path to owning and transacting in this space and we take pride in providing you with the right advice from the outset.
If you would like some further advice and assistance with your crypto-asset tax obligations, then please contact our office:
Paul Gray
Principal
T: 03 5225 5231 | M: 0414 195 886
E: pgray@ha.legal
Laura Spencer
Senior Assoicate
T 61 3 9611 0110 | M 0436 436 718
E: lspencer@ha.legal
Ryan Popovski
Lawyer
T: 03 5226 8572
E: rpopovski@ha.legal
