Recently the ATO has expressed concern that many taxpayers believe their cryptocurrency gains are tax-free, or only taxable when the holdings are cashed back into Australian dollars.
ATO data analysis shows a dramatic increase in trading since the beginning of 2020 and has estimated that there are over 600,000 taxpayers that have invested in crypto-assets in recent years.
This year, the ATO will be writing to around 100,000 taxpayers with cryptocurrency assets explaining their tax obligations and urging them to review their previously lodged returns. The ATO also expects to prompt almost 300,000 taxpayers as they lodge their 2021 tax return to report their cryptocurrency capital gains or losses.
In recent articles, the ATO has been focused on taxpayers bringing to account capital gains on the sale of cryptocurrency assets. However, we believe it is important to note that gains from cryptocurrency assets can be treated as either trading profit or capital gains, depending on the taxpayer’s activities within the period.
Gains from cryptocurrency are similar to gains from other investments, such as shares. The same rules also apply to the disposal of non-fungible tokens ('NFTs'). Where a taxpayer is actively making multiple trades each year, this may be treated as revenue from a business of cryptocurrency trading rather than capital gains from disposal of investments. Due to the ATO’s scrutiny in this area, it is important to have this distinction clarified at the outset.
Where you hold cryptocurrency assets on capital account, holding a cryptocurrency asset for at least 12 months as an investment may mean the holder is entitled to a CGT discount if they have made a capital gain. However, in order to access these concessions, certain criteria must first be met.
The ATO matches data from cryptocurrency designated service providers to individuals’ tax returns, helping it to ensure investors are paying the right amount of tax.
“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,” Assistant Commissioner, Tim Loh said.
Businesses or sole traders that are paid cryptocurrency for goods or services will have these payments taxed as income based on the value of the cryptocurrency in Australian dollars.
If you’re not sure how to report cryptocurrency assets including gains and losses or revenue in your income tax return, we can help. If you are interested in investing in crypto currency, or other assets, we can also assist in establishing the most appropriate structure for your investment choices. Contact your usual Mazars adviser, the author or speak to one of our tax advisory specialists via the form below or on:
Author: Karen Thompson
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