Cryptocurrency owners better check that they're reporting their transactions the right way.
That's the message from the Australian Taxation Office (ATO), which revealed this week five tips for crypto investors to double-check as tax time begins in earnest.
ATO assistant Commissioner Tim Loh empathised with crypto holders who could think the tax implications are complicated.
"That's why our focus is on helping people get it right," he said.
"Over one million taxpayers will have a message appear as a reminder when they prepare their tax returns saying they may have capital gains or capital losses from crypto to declare."
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1. Crypto is an asset that attracts capital gains tax
According to the ATO, "generally" cryptocurrencies are an asset for capital gains tax (CGT) purposes.
This means taxpayers must report when there has been a "disposal" of such an asset. Such an event could occur when an investor:
- Trades, sells or gifts crypto
- Exchanges one cryptocurrency for another cryptocurrency
- Converts crypto to a fiat currency, such as Australian dollars
- Spends crypto in return for goods or services
After such an event, the investor will either have a capital gain or a loss, which needs to be reported in tax returns. This is why records of all crypto transactions need to be kept somewhere.
Like any other CGT asset, an investor could be eligible for a 50% discount on the tax liable if they've held the crypto for longer than 12 months.
2. What if there is a capital loss?
This is especially relevant for the financial year just ended, as most cryptos have plunged in value.
The ATO reminded taxpayers that a capital loss can only be claimed upon disposal. Paper losses, like Bitcoin (CRYPTO: BTC)'s value merely plummeting, can't be claimed as a capital loss.
Capital losses can't be offset against other income, like from your day job. But it can offset capital gains from the same year or be carried forward to be used in future years.
3. What if I received income from crypto?
An investor may have eked out an income from crypto, through activities like staking or airdrops.
These payments must be included in tax returns under "other income".
"Whether you receive income in the form of Australian dollars or crypto assets, you need to make sure the correct information is included in your tax return," said Loh.
4. Record keeping
The ATO warns crypto investors to keep immaculate records of when they bought or sold cryptos.
Each cryptocurrency is a separate CGT asset, the office cautioned.
"Keeping good records gives the ATO confidence you are reporting correctly and can reassure you that you are claiming everything you are entitled to," said Loh.
"It's vital that you 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."
5. Data matching
The tax office reminded Australians that their activities are being tracked in the background.
Money trails can be traced back to taxpayers using data from banks and crypto exchanges.
"We are able to match this data to individuals transacting in crypto assets, so don't forget to include gains and losses in your tax return," said Loh.
The ATO also reminded investors that correcting their return retrospectively will not be penalised. But ignoring errors could have later consequences, such as an audit.
