The crackdown is well underway as the ATO intends to target 600,000 Aussie taxpayers who have invested in cryptocurrencies and may have omitted CGT events. Crypto joins property and share trading as key CGT areas for the 2021 tax year.
As the explosion in crypto investment ramps up and FOMO kicks in, this year alone the ATO will write to 100,000 taxpayers with crypto assets asking them to explain their tax obligations and to review previous tax returns for errors and omissions. Further the ATO are predicting that potentially 300,000 taxpayers will also be prompted to report capital gains and losses.
I own Crypto Currency, what are my tax obligations?
A capital gains tax (CGT) event occurs when you dispose of your cryptocurrency. A disposal can occur when you:
- Sell or gift cryptocurrency
- Trade or exchange cryptocurrency (including the disposal of one cryptocurrency for another cryptocurrency)
- Convert cryptocurrency to fiat currency (a currency established by government regulation or law), such as Australian dollars, or
- Use cryptocurrency to obtain goods or services.
If you make a capital gain on the disposal of cryptocurrency, generally the gain will be taxed.
If the sale of the crypto is part of a business you carry on, the profits you make on the sale will be assessable as ordinary income and not as a capital gain. This concept is similar to share trading versus share investment, or a rental property being held for passive income versus buying and selling an investment property with a profit-making intention.
If you hold crypto as an investment and the ownership period is greater than 12 months and you dispose of your crypto investment under one of the above scenarios, you may be entitled to a capital gains discount the same as traditional investments.
There is a tax exemption for personal use crypto that is worth understanding.
How is the ATO collecting the data?
The ATO is collecting data from crypto exchanges and compares this to what has been disclosed on the tax returns. There is a school of thought that up until now, the ATO has not been sophisticated enough to data match and that is why only now they are cracking down on the taxpayer obligations.
What if I lose my private key?
Besides the fact that you may have lost a considerable amount of money, there is a silver lining. You should be able to claim a capital (or trading) loss if you can substantiate specific details concerning your ownership.
Fun facts and terminology… a beginner’s guide:
- Bitcoin was the first cryptocurrency, capturing 60% of the crypto market
- Blockchain is a public ledger, anyone can see all the non-descript data loaded on to the ledger since crypto was created in 2009
- There are 1 million operating daily across the globe. The security of the blockchain and network is ensured by the miners
- At this point, only 21 million bitcoins will be in circulation (capped out at the year 2140), so far 18.5 million have been mined (issued)
- Crypto Wallet. Like a traditional wallet, but stores proof of your digital cash and not the folding stuff
- Crypto Exchanges. Think Commsec or ETrade when dealing with shares.
How can we help?
Crypto currency is a complex space and rapidly evolving. If you’re unsure about your obligations, reach out to one of our advisors or call to discuss your circumstances.
