“If you are new to cryptocurrency then tax time may be confusing but the process can be clearer if you are aware of your tax obligations in declaring your crypto activities,” Hou said.
“The ATO believes that over 600,000 taxpayers have invested in crypto-assets in recent years. Many investors are middle-aged, encouraged to purchase by their millennial children.”
ATO considers crypto an asset
“Therefore if you realise a financial gain you may be required to pay capital gains tax (CGT).”
Activities that can trigger a taxable event
At tax time, CGT applies to instances like gifting or selling a cryptocurrency, trading it for another cryptocurrency, converting it into Australian dollars or buying goods and services.
In essence, every time there is a transaction involving crypto, a tax event is triggered.
“To ensure that you are taxed correctly, you should be aware of your classification under the ATO, either as a business or an individual. The majority of people who engage with cryptocurrency are identified as investors and may have to pay CGT,” Hou said.
The Australian Tax Office has doubled down on its efforts in collecting taxes on cryptocurrency gains with more regulations and resources in place.
Around 100,000 taxpayers who traded in cryptocurrency were contacted by the ATO last year.
The ATO tracks everything
“Some people may think that because cryptocurrency isn’t tangible and is anonymous that declaring it at tax time isn’t necessary. This view is misguided,” Hou said.
“Make sure you keep track of all cryptocurrency transactions, including all of the details such as the value, dates, names of the digital currency and the purpose of the transactions.”
Use clever apps to manage your crypto activities
“Because crypto is a new form of asset the onus to track and manage transactions rests with the crypto owner. You can’t call up the bank and ask for a statement.”
“You need to be keeping track of your activities yourself. There are a number of simple cloud-based apps that enable you to capture your transactions with ease,” Hou added.
Declare your activities at tax time
“If you don’t declare what you have gained from your crypto-assets, you may come across penalties, so it’s important that you report on everything you earn.”
“The ATO’s systems are complex and far-reaching, so chances are the ATO will already know what your crypto obligations are before you even lodge your tax return,” Hou explained.
Let your accountant know
“Ensure you let your accountant know that you have invested in crypto and provide them with a detailed overview of your activities in this area,” Hou said.
“Accountants know how to assist and advise you when it comes to crypto and if they don’t, find another accountant. The complex and volatile nature of crypto and the wild gains can mean you may be liable for considerable CGT depending on how you manage your affairs.”
“While crypto is a decentralised digital currency, the ATO already knows how to track, find and treat your tax obligations when it comes to crypto, so it is important that you know too.”
Coco Hou, is the MD of Platinum Accounting Australia and Platinum Professional Training.
Platinum Accounting Australia is one of the country’s leading accounting firms with a broad client base of businesses and individuals. Coco and her team work hard to deliver quality customised service and outcomes for their clients. Coco Hou is a CPA-qualified accountant.