The COVID-19 pandemic is having a multi-faceted impact which touches on almost every aspect of our lives. In turn this may be causing a shift in priorities for investors and business owners. However, owners of cryptocurrency should remain vigilant – the Australian Taxation Office (ATO) has not shifted compliance efforts in this area and continues to build and monitor its increased tax framework for cryptocurrency.
ATO Measures: Trying to Catch the Deluge
There are an untold number of cryptocurrency transactions on any given day. However, this is by no means a deterrent for the ATO nor a reality which the ATO shies away from. Current measures and efforts by the ATO to ensure such transactions can be tracked and taxpayers apply the appropriate tax treatment include:
ATO Guidance
To assist taxpayers in understanding their tax obligations, the ATO has published guidance on numerous topics. This includes transacting with cryptocurrency, the use of cryptocurrency in business, and the need to ensure that taxpayers are keeping adequate records of all dealings in their cryptocurrency. We have previously reported on these topics and provided further guidance here and here.
The ATO continues to update the guidance on its website and more recently has provided updates for the tax treatment of cryptocurrencies used in business and other transactions (see here). In July 2020 the ATO also issued a reminder to taxpayers concerning reporting on all the income they derive from business, including from cryptocurrencies (see here).
The recent updates and reminders from the ATO demonstrate that the Commissioner of Federal Taxation’s (Commissioner) focus on cryptocurrency has not wavered despite the many challenges posed by COVID-19. Businesses and individual investors must ensure that they maintain adequate records of and report on all dealings in the cryptocurrencies they own.
It is important to note that the ATO’s current published guidance is not exhaustive and is intended only to shed light on the specific topics mentioned above. It is likely that taxpayers have many questions on the application of ATO’s published guidance to their circumstances or may have specific questions that the ATO has not addressed. In either case, taxpayers should consider how the ATO’s published guidance might apply to them and ensure they seek legal advice should they require further information or clarification.
Data Matching Program
In April 2019 the Commissioner gave notice that the ATO would commence a data matching program on cryptocurrency. We have previously reported on the data matching program here. Under the program, the ATO will collect data relating to cryptocurrency transactions from cryptocurrency designated service providers. The relevant periods include the income tax years 2014-15 through to 2019-20.
Data collected by the ATO will be matched against existing records and returns to identify individuals who may not be meeting their registration, reporting, lodgement and/or payment obligations in respect of cryptocurrency transactions. More information about the ATO’s data matching program can be found here.
If you have purchased, received or have otherwise dealt with cryptocurrency since 2014, and are unsure as to whether you have correctly recorded and reported on these transactions, you should seek legal advice at your earliest opportunity.
Compliance Letters
From March 2020, the ATO began issuing compliance letters to over 350,000 individuals holding cryptocurrency in Australia. These letters reiterated the obligations imposed on holders of cryptocurrency to record and report any and all dealings in cryptocurrency.
These letters demonstrate that the ATO is seeking strict compliance in relation to dealings with cryptocurrency despite the existence of the current COVID-19 pandemic. This in turn serves as an important reminder to taxpayers that they must continue to adhere to their legal tax obligations despite the serious issues posed by the COVID-19 pandemic.
If you have received a compliance letter and are unsure as to whether, or how to respond, you should seek legal advice at your earliest opportunity.
J5 – Global Tax Enforcement
The Joint Chiefs of Global Tax Enforcement (J5) was established to address international tax crime, money laundering and other financial crime. The J5 brings together the leading tax, offshore tax evasion, cryptocurrency and cyber experts from Australia, the United Kingdom, the United States, Canada and the Netherlands to share intelligence at speed, build capability and to carry out operational activities.
The ATO is one of the five Government agencies participating in J5 along with, for example, Her Majesty’s Revenue and Customs from the United Kingdom. The ATO receives support for this project from other Australian Government agencies such as the Australian Criminal Intelligence Commission and Australian Transaction Reports and Analysis Centre.
The J5 and the ATO continue to monitor, identify and investigate cryptocurrency transactions throughout 2020 and there is no indication that this priority has been otherwise diverted. If anything, the ATO’s ongoing data matching program for cryptocurrency is significantly enhanced by its involvement with J5; as the ATO is now better able to collect and analyse data from overseas countries.
As a result, taxpayers should not underestimate the data matching capabilities of the ATO here, nor should they form a view that because their assets are held offshore, they will be outside the scope of the ATO’s purview.
If you are unsure of your tax position in relation to cryptocurrency, you should seek legal advice to avoid potential scrutiny from the ATO and/or J5.
Dealing with the ATO: Is there a battle ahead?
Notwithstanding the above, the ATO in line with the Australian Government’s policy, has introduced several relief measures to ease the burden on taxpayers during the COVID-19 pandemic. An exhaustive list of these measures can be found on the ATO website here. However, the ATO is also providing additional administrative support to taxpayers (see here).
These support measures enable taxpayers to, for example defer payments or enter payment plans, remit interest and penalties, vary PAY-G instalments, and change their GST reporting cycles.
Despite these measures, it is unclear as to what extent the ATO will grant relief to taxpayers during the COVID-19 pandemic, especially in the context of an audit or other serious investigation.
For example, in Elanor Operations Pty Ltd v Chief Commissioner of State Revenue [2020] NSWSC 840 (Elanor) the Supreme Court of New South Wales held that changing business circumstances from the pandemic did not derogate from the taxpayer’s obligation to produce records arising from a valid request by the Commissioner of State Revenue NSW. We have previously reported on this case here.
Elanor provides a clear message to taxpayers who are subject to audits during the COVID-19 pandemic; audits will continue and so will your obligations to comply with any formal requests made by the ATO.
Do you have any questions?
Our specialists in cryptocurrency continue to provide updates and guidance on the taxation of cryptocurrency. You can find our updates here.
Taxpayers uncertain of their obligations or how these rules apply to them can contact our tax team who have specialist knowledge in this area. We can provide you with help in relation to areas such as:
understanding the taxation of cryptocurrency and its application to you and/or your business;
assessing whether you have met your compliance and reporting obligations in relation to cryptocurrency purchases, sales, or transfers;
assistance with voluntary disclosures and applications for the reduction in penalties where you have not been compliant;
assistance with ATO audits or responses to compliance letters regarding your cryptocurrency holdings; and
preparation of ruling applications where the tax consequences of your situation are uncertain.
For more information please contact:
Henri Sheridan
Graduate Lawyer
T +61 3 9611 0194
E hsheridan@sladen.com.au
Laura Spencer
Senior Associate
T +61 3 9611 0110
lspencer@sladen.com.au
Daniel Smedley
Principal | Accredited Specialist in Tax Law
M +61 411 319 327| T +61 3 9611 0105
E: dsmedley@sladen.com.au
