Cryptocurrency traders once again on ATO's radar this tax time

According to ATO data, around 600,000 taxpayers invested in crypto assets in the past few years, with a dramatic increase since the start of 2020.

The problem is, the ATO fears many taxpayers think cryptocurrency gains are tax free, or only taxable when the holdings are cashed back into Australian dollars.

ATO assistant commissioner Tim Loh said the ATO will soon be writing to around 100,000 taxpayers with cryptocurrency assets explaining their tax obligations, and asking many of them to review their previously lodged returns.

“We also expect to prompt almost 300,000 taxpayers as they lodge their 2021 tax return to report their cryptocurrency capital gains or losses,” said Mr Loh.

It’s not the first time cryptocurrency traders have been given the nudge.

Last year, the ATO contacted around 100,000 of them, and prompted 140,000 taxpayers at lodgment.

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,” said Mr Loh.

CGT also applies to the disposal of non-fungible tokens (NFTs).

“We are alarmed that some taxpayers think that the anonymity of cryptocurrencies provides a licence to ignore their tax obligations,” said Mr Loh.

“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.”

Mr Loh warned crypto traders the ATO matches data from cryptocurrency designated service providers to individuals’ tax returns, helping the Tax Office ensure investors are paying the right amount of tax.

The best advice is to keep accurate and detailed transaction records, to nail your gains and losses.

“If you realise you’ve made a mistake and correct your return, we will significantly reduce penalties. However, failing to report on crypto assets and not taking action when reminded will prompt penalties and potentially an audit,” he said.

Businesses and sole traders paid in cryptocurrency for goods or services, will have these payments taxed as income, based on the value of the cryptocurrency in Australian dollars.

The Tax Office said holding a cryptocurrency for at least 12 months as an investment could entitle you to a CGT discount if you have made a capital gain.

In limited circumstances, cryptocurrency may be a personal use asset.