Cryptocurrency traders are being warned by the Taxation Office to understand tax obligations or be hit with penalties and audits.
Australia’s Tax Office Puts Crypto Traders On Notice
CANBERRA, Australia — Cryptocurrency traders who think they’re living in a faceless high-tech world will soon get a letter from the tax office.
Australian Taxation Office data has captured a dramatic increase in trading since the beginning of 2020, with more than 600,000 taxpayers now dabbling in crypto assets.
They’ll be slugged with penalties and audits if gains are not declared at tax time.
“We are alarmed some taxpayers think the anonymity of cryptocurrencies provides a license to ignore their tax obligations,” said Tim Loh, Assistant Commissioner.
Loh explained that gains from cryptocurrency are similar to profits from other investments, such as shares. Generally, as an investor, if you buy, sell, swap for fiat currency, or exchange one cryptocurrency for another, it will be subject to capital gains tax (CGT) and must be reported.
CGT also applies to the disposal of non-fungible tokens (NFTs).
“While it appears 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.”
“We know cryptocurrencies can be complicated. That’s why our focus is on helping people get it right.”
“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,” Loh said in a statement.
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.
Holding a cryptocurrency for at least 12 months as an investment may mean you are entitled to a CGT discount if you have made a capital gain. In limited circumstances, cryptocurrency may be a personal use asset.
“If you realize you’ve made a mistake and correct your return, we will significantly reduce penalties. However, failing to report on crypto-assets and not taking action when reminded will prompt penalties and potentially an audit.”
The Australian Taxation Office matches data to tax returns to ensure investors are paying the right amount of tax.
The tax office will be writing to about 100,000 taxpayers with cryptocurrency assets explaining their tax obligations and urging them to review their previously lodged returns.
The Australian Taxation Office also expects to prompt almost 300,000 taxpayers as they lodge their 2021 tax returns to report their cryptocurrency capital gains or losses.
The Australian Taxation Office has created a cryptocurrency factsheet with tips and information on how capital gains tax applies to cryptocurrency.
(Edited by Vaibhav Vishwanath Pawar and Ojaswin Kathuria)