People investing in cryptocurrency and NFTs — or imaginary money and art, as I call them — seem to forget they have to pay tax on any profits they make.
No matter how wildly these kooky digi markets fluctuate, if you made even a cent of profit from investing in them, you have to declare it in your tax return. You made a profit, therefore you made an income — which means the government wants a cut.
You need to declare these profits in your tax return because, unlike a regular paycheck from your day job, tax wasn’t withheld when you sold the assets.
And we know that the ATO is focusing on cryptocurrency investments this year. They’re also keeping a close eye on car costs, laundry expenses and travel to work this year, given that most of us were working from home a lot more. So be on guard. Don’t get caught out.
You’ve most likely heard of capital gains tax in relation to Boomers enjoying their negatively-geared investment properties. While these investors can claim a tax break (yes, money back) if the property runs at a loss (say, when rent is less than the financing and upkeep of the property), they do have to pay capital gains tax when they eventually sell the property. And given the off-the-charts nature of the property market, especially in Sydney, those investors are making massive profits when they sell.
Capital gains tax can apply to any asset you make a profit on — property, shares, art (physical or digital), even collectable items like baseball cards.
And don’t make the mistake of assuming that if you pay a tax accountant to prepare your tax return then your hands are clean. ATO Assistant Commissioner Tim Loh has warned that “using a tax accountant does not absolve you of all responsibility”.
“You can’t simply put your hands up and say ‘over to you, accountant’. You have a responsibility to know what you’re claiming and to confirm the details of your income tax return before they lodge it for you,” he said.
Check out the ATO’s website for all the nitty-gritty on this year’s tax season.