The Australian Taxation Office (ATO) is concerned that many taxpayers believe their cryptocurrency gains are tax free or only taxable when the holdings are cashed back into Australian dollars, issuing advice to the nearly 600,000 taxpayers who have invested in crypto-assets in recent years.
“This year, we will be writing to around 100,000 taxpayers with cryptocurrency assets explaining their tax obligations and urging them to review their previously lodged returns,” ATO assistant commissioner Tim Loh said.
“We also expect to prompt almost 300,000 taxpayers as they lodge their 2021 tax return to report their cryptocurrency capital gains or losses.”
Last year, the ATO directly contacted around 100,000 taxpayers who had traded in cryptocurrency and prompted 140,000 taxpayers at lodgement.
Mr Loh explained that gains from cryptocurrency are similar to gains from other investments, such as shares.
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 (CGT) and must be reported.
“We are alarmed that some taxpayers think that the anonymity of cryptocurrencies provides a licence to ignore their tax obligations,” Mr Loh said.
“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.”
The ATO matches data from cryptocurrency designated service providers to individuals’ tax returns, helping to ensure investors are paying the right amount of tax.
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“We know cryptocurrencies can be complicated. That’s why our focus is on helping people get it right.
“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.
Holding a cryptocurrency for at least 12 months as an investment may mean you are entitled to a CGT discount if you have made a capital gain.
Calculating CGT on cryptocurrency
Convert your cryptocurrency purchases and sales into Australian dollars to calculate your capital gain or loss.
A capital gain or loss is the difference between your:
- cost base (cost of ownership – including the purchase price of the coin plus certain other costs associated with acquiring, holding and disposing of it), and
- capital proceeds (what you receive or the market value of what you receive) when you dispose of your cryptocurrency.
You can claim any current year net capital loss against future capital gains. Report the loss in your tax return so you have it available for future investments.
Have you invested in a cryptocurrency? Were you aware of your tax obligations relating to the money invested in cryptocurrencies? Why not share your thoughts in the comments section below?
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