Cryptocurrency Trading is Subject to Tax: New ATO Data-Matching Program

According to ATO estimates, over 600,000 Australian taxpayers have invested in crypto-assets in recent years. The ATO has recently issued a reminder that although many people may believe that gains made through cryptocurrency trading are tax-free, or only taxable when the holdings are cashed back into “real” Australian dollars, in fact this is not the case – capital gains tax (CGT) does apply where gains or losses are in the form of crypto-assets.

“We are alarmed that some taxpayers think that the anonymity of cryptocurrencies provides a licence to ignore their tax obligations”, ATO Assistant Commissioner Tim Loh has said. Mr Loh added that while it may appear that cryptocurrencies operate in an anonymous digital world, the ATO does closely track where these assets interact with the “real” financial world through data from banks, financial institutions and cryptocurrency online exchanges, following the money back to the taxpayer.

This year the ATO will be writing to around 100,000 people with cryptocurrency assets explaining their tax obligations and urging them to review their previously lodged returns. It also expects to prompt 300,000 taxpayers to report their cryptocurrency capital gains or losses as they lodge their 2021 tax returns.

“Gains from cryptocurrency are similar to gains from other investments, such as shares”, Mr Loh explained. “Generally, as an investor, if you buy, sell, swap for fiat currency, or exchange one cryptocurrency for another, it will be subject to capital gains tax and must be reported.”

“The best tip to nail your cryptocurrency gains and losses is to keep accurate records, including dates of transactions, the value in Australian dollars at the time of the transactions, what the transactions were for, and who the other party was, even if it’s just their wallet address”, Mr Loh said.

Alongside these communications to taxpayers, the ATO is beginning a new data-matching program focused on crypto-asset transactions. It will acquire account identification and transaction data from cryptocurrency designated service providers for the 2021 financial year through to the 2023 financial year inclusively. The ATO estimates that the records relating to approximately 400,000 to 600,000 individuals will be obtained each financial year.

Data Items

The data items will include:

• client identification details (names, addresses, date of birth, phone numbers, social media accounts and email addresses); and
• transaction details (bank account details, wallet addresses, transaction dates, transaction time, transaction type, deposits, withdrawals, transaction quantities and coin type).

Objectives

The ATO says that the objectives of the program are to:

• promote voluntary compliance by communicating how the ATO uses external data with its own “to help encourage taxpayers to comply with their tax and superannuation obligations”;
• identify and educate those individuals and businesses that may be failing to meet their registration and/or lodgment obligations and “assist them to comply”;
• gain insights from the data that may help to develop and implement treatment strategies to improve voluntary compliance (including educational or compliance activities, as appropriate);
• gain insights from the data to increase the ATO’s understanding of the behaviours and compliance profiles of individuals and businesses that have bought, sold or accepted payment via cryptocurrency;
• help ensure that individuals and businesses that trade or accept cryptocurrency as payment are fulfilling their taxation lodgment, reporting and payment obligations; and
• help ensure that individuals and businesses are fulfilling their tax and superannuation reporting obligations.

Important: Clients should not act solely on the basis of the material contained here. Items herein are general comments only and do not constitute or convey advice per se. Also, changes in legislation may occur quickly. We, therefore, recommend that our formal advice be sought before acting in any of the areas.