Cryptocurrency, Tax, and the ATO’s data matching program.

Dear Reader,

Recently, the ATO has advised that it will acquire account identification and transaction data from crypto designated service providers to identify and treat clients who failed to report a disposal of crypto assets in their income tax return.?

With the rise of cryptocurrency, many small to medium businesses are exploring its potential. If you’re one of them, it’s crucial to understand the tax implications in Australia.?

What is Cryptocurrency?

Cryptocurrency is a digital or virtual currency that uses cryptography for security. Bitcoin, Ethereum, and Ripple are some of the popular ones. Businesses are using crypto for transactions, investments, and even as a payment method.?

Unlike traditional currencies, it operates independently of a central authority, such as a bank or government.? Most cryptocurrencies use blockchain technology. A blockchain is a distributed ledger that records all transactions across a network of computers. When someone sends cryptocurrency, the transaction is broadcast to a network of computers (nodes). These nodes validate and record the transaction on the blockchain.

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, this is not the case – capital gains tax (CGT) does apply to crypto-asset gains or losses.

ATO data matching program

Recently the ATO has advised that it will acquire account identification and transaction data from crypto designated service providers for the 2023-24 financial year through to the 2025-26 financial year (inclusive).?

The data items will include:?

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

The ATO says the data will be acquired and matched to ATO systems to identify and treat clients who failed to report a disposal of crypto assets in their income tax return.

How Is Crypto Taxed In Australia?

The Australian Taxation Office (ATO) sees cryptocurrency as property, not currency. This means you need to pay capital gains tax (CGT) on your crypto transactions, depending on whether you make a profit.

When you sell a cryptocurrency asset, you need to work out if you made a profit (capital gain) or lost money (capital loss). You have to report these gains and losses in your Income Tax Return and pay income tax on your net gains.

Crypto disposal is considered a ‘CGT Event’ by the ATO however ‘disposal’ doesn’t simply mean sale of your cryptocurrency. It also includes:

• gifting a crypto asset
• trading, exchanging or swapping one crypto asset for another
• converting a crypto asset to Australian or foreign currency
• buying goods or services with a crypto asset.

Cryptocurrency transactions are also subject to goods and services tax (GST) in some cases.

If you receive cryptocurrency as payment for goods or services, it’s considered part of your taxable income and should be declared on your tax return at its Australian dollar value at the time you receive it.

Crypto-to-crypto trades are also taxable events. It’s important to understand that when you trade one cryptocurrency for another, it is considered a disposal for tax purposes, and any capital gain or loss needs to be reported.

Mining cryptocurrency is also considered a taxable activity, and the mined coins are subject to taxation.

What you can do about it

1. Keep Accurate Records

Make sure to keep detailed records of all your crypto transactions. This includes:

• Date of the transaction
• Amount of cryptocurrency involved
• Value in Australian dollars at the time
• Purpose of the transaction

2. Understand Your Tax Obligations

In Australia, crypto is treated as property for tax purposes. This means any profits from buying and selling crypto are subject to capital gains tax (CGT).

3. Calculate Your CGT

To calculate your CGT, you need to figure out the cost base of your crypto and the proceeds from the sale or disposal. The difference is your capital gain, which is subject to CGT. Remember, trading one cryptocurrency for another counts as a disposal for CGT purposes. For more info visit the ATO's Guide on how to report?capital gains tax (CGT) on transactions involving crypto assets.

4. Lodge Your Tax Return

Include any capital gains or losses from your crypto transactions in your tax return. Don’t forget to report any staking income as well.

5. Keep Up-to-Date with Changes

Crypto regulations are always evolving. Stay informed about any changes in tax laws related to crypto and adjust your strategies accordingly.

Need Assistance?

Navigating crypto taxes doesn’t have to be a headache. Our team is here to help you understand the tax implications and ensure your business stays on the right side of the ATO’s regulations.

Got questions or need help with your crypto taxes? Book a call.