Interest in cryptocurrencies has exploded in the past year. Bitcoin reached highs of more than $80,000 at the beginning of 2021. The internet meme, dogecoin, saw its value rise by 12% in May. Recently, the Australian Tax Office (ATO) announced that they will be continuing with their data-matching program in an attempt to continue to put pressure on crypto traders. Their data-matching program will be further extended and is expected to cover most cryptocurrency transactions by the 2022-2023 financial years.
For many cryptocurrency holders, the tax implications have been relatively easy to avoid up until this point. The ATO has made it clear that this is no longer the case. Any tax avoidance will not be treated with leniency anymore. Their data-matching program affects the approximately 600 000 active crypto-coin users.
Tim Loh, the assistant commissioner, describes the current state of crypto and tax as,
“We are alarmed that some taxpayers think that the anonymity of cryptocurrencies provides a license to ignore their tax obligations. While it appears that cryptocurrency operates in an anonymous digital world, we closely track where it interacts with the real world through data from banks, financial institutions, and cryptocurrency online exchanges to follow the money back to the taxpayer.”
Crypto Capital Gain Tax
While cryptocurrencies have divided opinions about their ethics and validity, the ATO wants to shatter any illusions that their gains are tax-free. The assumption has been that unless crypto-coins are converted to Australian dollars, they are not, in fact, taxable dollars. This is not true. In whichever way the market wants to position itself in the future is still to be determined. What is certain is that governing bodies like the ATO will not stop their relentless regulation of the industry.
Cryptocurrencies are usually taxed as a capital profit or loss in Australia, as soon as they are converted, either into currency, other cryptocurrency or to purchase goods. No tax is applicable on the unrealised appreciation during a year. It is only when the gain is realised by the cryptocurrency being converted that the tax implication arises.
This update might seem nothing more than noteworthy to first-time and future crypto traders. But those who have held onto their high-performing coins, are faced with their investments being treated as capital gains. The tax implications for long-term traders will be high, which is understandably frustrating as tax-free gains have been the draw-card for cryptocurrencies in the past.
ATO Data Collection
The ATO will be collecting data about over 600 000 Australians. This will include:
- phone numbers
- transaction details
- bank accounts
- transaction dates
- coin types
While regulation by the ATO is needed, how it manages personal information and online activity is yet to be decided. For now, what is imperative, is that all cryptocurrency users prioritize keeping clear records of all their transactions and investments.
As you consider your legal and tax position, consider booking a consultation with Teamwork Accounting to ensure you and your business are in good standing.