Blog Layout

Crypto crackdown

Simon Smith

Even though the technology behind cryptocurrencies is innovative and new, the tax laws that apply are well established under capital gains tax provisions for cryptocurrency investors.

The Australian Taxation Office (ATO) estimates more than 600,000 Australian taxpayers have invested in crypto assets in recent years, some of whom have failed to declare their capital gains. It is concerned many taxpayers believe their cryptocurrency gains are tax free or only taxable when their holdings are cashed back into Australian dollars. That's not the case.

Generally, as an investor, if you buy, sell, swap or exchange one cryptocurrency for another, the transaction is subject to CGT and must be reported.

Cryptocurrency gains are treated in the same way as gains from other investments, such as shares.

"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," warns Tim Loh, ATO's assistant commissioner.

The ATO has had a data-matching program in place to track cryptocurrency transactions since early 2019, and receives bulk records from Australian-designated service providers as part of the program.

Data provided to the ATO includes cryptocurrency wallet information, including names and addresses, bank details and transaction information in relation to purchases, sales and transfers.

There are other circumstances where the ordinary income rules apply, and this includes where the client is conducting a cryptocurrency trading business. In this case, the trading stock rules apply, and not the CGT rules.

Proceeds from the sale of cryptocurrency held as trading stock in a business are ordinary income, and the cost of acquiring cryptocurrency held as trading stock is deductible.

This is much the same treatment that would apply to a person who is carrying on a business of share trading.

There are also situations where an isolated cryptocurrency transaction or series of transactions can give rise to ordinary income if the transaction was entered into with a purpose or intention of making a profit, and the transaction is part of a business operation or commercial in character.

If you should have any doubts about the tax implications of your activities with cryptocurrency, please talk to us.

Share by: