Areas of ATO Scrutiny 2022 – What’s New

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The ATO has been very active lately trying to dispel myths about how cryptocurrency is taxed.

Determining the tax treatment of cryptocurrency can be complicated but if you dispose of an item of cryptocurrency and the value of the item has increased since you acquired it then the gain will normally be subject to tax. The main exception to this is where the cryptocurrency is acquired with the intention of using it to make private purchases in the short term and it is actually used for this purpose, in which case some exemptions relating to personal use assets might apply.

Some key things to remember when it comes to cryptocurrency are below:

  • A CGT event occurs when disposing of cryptocurrency. This can include selling cryptocurrency for a fiat currency (e.g., $AUD), exchanging one cryptocurrency for another, gifting it, trading it or using it to pay for goods or services.
  • Each cryptocurrency is a separate asset for CGT purposes. When you dispose of one cryptocurrency to acquire another, you are disposing of one CGT asset and acquiring another CGT asset. This triggers a taxing event.
  • Transferring cryptocurrency from one wallet to another is not considered a CGT disposal if you maintain ownership of the coin.
  • The longer you hold cryptocurrency, the less likely it will be classified as a personal use asset.
  • Record keeping is extremely important – you need receipts and details of the type of coin, purchase price, date and time of transactions in Australian dollars, records for any exchanges, digital wallet and keys, and what has been paid in commissions or brokerage fees, and records of tax agent, accountant and legal costs. The ATO regularly runs data matching projects, and they have access to the data from many crypto platforms and banks.

If you make a loss on cryptocurrency, you can only claim the loss as a deduction if you are in the business of trading.

If your business accepts cryptocurrency as payment for goods or services, these payments are treated in the same way as any other. That is, if your business is registered for GST, the price paid by the person paying in the digital currency should include GST. Likewise, if you purchase goods or services for use in your business then you should generally be able to claim GST credits on the transaction in your activity statement, even if you used digital currency to make the purchase.

It is possible that an entity could hold cryptocurrency as trading stock if it is held for the purpose of sale or exchange in the ordinary course of a business. Any gains from the trades are then taxed in the business’s income tax return. If you carry on a business of trading cryptocurrencies, that is, you approach the trading in a business-like manner, then you can generally claim losses and other business expenses as a deduction.

Even if the cryptocurrency is not held as trading stock the disposal of cryptocurrency items will generally trigger a taxing event and it will be necessary to consider whether a gain or loss needs to be recognised for tax purposes.

The tax laws can be complex in this area and it’s important to ensure that you get the right advice.

It’s also important to keep records of your cryptocurrency transactions. The ATO regularly runs data matching projects and has access to the data from many crypto platforms and banks.

The material and contents provided in this article are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.