The ATO has reissued warnings to cryptocurrency traders, reminding them that it will be keeping a close eye on their profit reporting. If you cashed in a windfall and failed to declare it - watch out.
ATO now considers cryptocurrency to be an asset that must be declared. And if you're planning to hide your gains, beware. The tax man has ways of finding out what crypto you have and whether you're hiding cash.
“It’s important to know how the ATO classifies cryptocurrency, as this determines how it’s treated for taxation purposes," said Liz Russell, senior tax agent at Etax.com.au.
She said cryptocurrency is treated as an asset and subject to the same capital gains tax (CGT) provisions that apply to real estate and shares.
"Let’s say you originally bought $5,000 worth of XEM. If you later traded it for fiat currency of $8,500, then the $3,500 in profit is considered a capital gain, and you’ll need to add it to your assessable income for the financial year – much like you would any gains you make the sale of shares or an investment property," she explained.
Regardless of whether cryptocurrency is being disposed in whole or in part, Australians are required to pay tax on any capital gain when trading cryptocurrency.
Many traders like the anonymity that cryptocurrency trading offers but the ATO can check what's going on by looking ay hundreds of data sources. So, declaring a modest income after a buying a new house and a Lamborghini with cash might not be a clever move if you're trying to hide some crypto windfalls. Russell added that the ATO is doubling down with its data-matching technology to ensure we pay the required taxes related to cryptocurrency trading.
Given the cryptocurrency markets have been dropping like crazy over the last couple of weeks, with most major coins dropping around 20 percent in value over the last week alone, it's likely some folks out there will be declaring losses. If that's the case, then you may be able to reduce tax liability.
“For example if you made a $3,000 loss on the sale of cryptocurrency but a $4,000 gain on the sale of shares, your net capital gain would be the $4,000 gain minus the $3,000 loss, equalling a $1,000 capital gain," explained Russel.
Of course, some of the confusion comes from the fact you can use cryptocurrencies to buy goods. In that case, if you're buying items from the profits, there's now CGT.
This story has been updated since its original publication.