WHAT DOES THE ATO REALLY KNOW ABOUT YOUR CRYPTOCURRENCY HOLDINGS?
Once again news and social media feeds are filled with tales of cryptocurrency (in particular bitcoin) prices booming. Many investors are cognizant of the current instability of fiat currencies (AUD, GBP, USD etc) and low interest rates resulting from the economic impact of the global COVID-19 pandemic. By contrast since around October 2020 the value of cryptocurrencies has seen a confident overall increase despite some dips.
Recent reports that Tesla invested AUD1.9 billion in bitcoin saw prices of that coin surge in value which has only added to the current hysteria and move by investors away from traditional fiat currencies to cryptocurrencies. However, comments made by Telsa founder Elon Musk in the days prior to this article being published have seen the prices take a dip as he pondered whether the coins were overpriced.
Nevertheless, many Australians are confident the price surges will continue. However before jumping in consideration should be given to disclosure requirements for tax purposes. The anonymity that was originally touted as the shining crown of cryptocurrencies is not the invisibility cloak many may think it to be. We previously reported on the tax treatment of cryptocurrency transactions. But what does the ATO really know about your holdings and what do you need to disclose?
What Information does the ATO have on your Cryptocurrency Trading?
The Australian Taxation Office (ATO) has emphasised on numerous occasions its data matching capabilities and its priority in building and monitoring a tax framework for cryptocurrency.
In April 2019 the Commissioner gave notice that the ATO would commence a data matching program on cryptocurrency. We have previously reported on the program here.
Under the program, the ATO is collecting data relating to cryptocurrency transactions from cryptocurrency designated service providers (DSPs). DSPs are entities through which individuals and businesses can buy, sell or transfer cryptocurrency holdings. Most commonly this encapsulates cryptocurrency exchanges that operate a business in Australia and are governed by Australian law - such as CoinSpot and Swyftx.
Taxpayers buying and selling on exchanges that operate in Australia should therefore assume that at a minimum the ATO has access to the following data:
the cost of cryptocurrency you have purchased via an exchange;
cryptocurrency sales you made via an exchange and any gross profits or losses made;
your current cryptocurrency holdings with exchanges operating in Australia; and
any trades you have made between coins via an exchange.
In addition to providing data to the ATO, DSPs have legal obligations to provide information such as users of the DSP to the Australian Transaction Reports and Analysis Centre (AUSTRAC) and the Australian Securities and Investment Commission (ASIC). It is understood that these Federal Government institutions in turn share information with the ATO.
On 11 September 2019 the Australian Senate resolved to establish a Select Committee on Financial Technology and Regulatory Technology. As part of this process the Senate is reviewing the regulation of cryptocurrencies and it is anticipated that further regulation and data sharing will follow.
What if my Cryptocurrency is held with an overseas exchange?
Australian residents are taxed on their worldwide income. This means taxpayers must declare all income they receive from foreign sources including overseas cryptocurrency exchanges.
The ATO has arrangements with overseas jurisdictions to share information to ensure taxpayers are paying the correct amount of tax. This includes the Automatic Exchange of Information (AEoI) which exists between Australia and various nations.
With this increased data sharing across countries it is becoming increasingly more likely that the ATO will be alerted to income sources from overseas cryptocurrency exchanges. Taxpayers therefore need to consider how overseas based transactions should be treated for Australian taxation purposes and disclose them appropriately.
What do I need to report in my tax return in relation to my cryptocurrencies?
We previously released a series of articles on the taxation of cryptocurrency in Australia. The exact tax treatment which applies to cryptocurrency transactions will vary depending on the specific facts of that the holding. Taxpayers should familiarise themselves with the relevant rules or seek appropriate legal advice to understand their obligations. At Sladen Legal our team understands both the cryptocurrency technology and the appropriate tax treatments, if you need assistance contact us.
What now?
In summary, whilst cryptocurrencies appear to be back in the media’s spotlight as their value increases, and decreases, the coins have never been far from the ATO’s sight. The compliance framework being built in Australia and globally should not be underestimated by taxpayers as serious penalties can apply to non-compliance.
Taxpayers uncertain as to the reporting requirements for their cryptocurrency 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;
assessing whether you have met your compliance and reporting obligations in relation to cryptocurrency purchases, sales, or transfers;
help with voluntary disclosures to amend incorrect tax returns previously submitted and applications for the reduction in penalties where you have not been compliant; and
preparation of ruling applications where the tax consequences of your situation are uncertain.
For more information contact:
Laura Spencer
Senior Associate
M 0436 436 718 | T +61 3 9611 0110
E: 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
