Why the ATO is cracking down on Bitcoin investors in this year’s tax returns – here’s how to make sure you don’t into trouble
- Australian tax laws see cryptocurrencies as an investment not a currency
- If you make a profit between buying and selling them, you’ll need to pay tax on it
- With Bitcoin booming, the ATO has warned they’ll be looking out for tax dodgers
- An estimated 600,000 Aussies are dabbling in cryptocurrency, says the ATO
The Australian Tax Office is cracking down on investors cashing in on Bitcoin but we’ve got an expert guide to make sure you don’t get busted at tax time.
Despite cryptocurrencies like Bitcoin and Dogecoin being hyped as anonymous, the ATO still sees transactions, and capital gains tax will likely be due on any profits.
The complex regulations could catch out the unwary at tax return time but tax specialists H&R Block say keeping careful records can avoid a world of tax pain.
The ATO believes some of the estimated 600,000 Australians trading cryptocurrency may think they can dodge paying tax on the profits.
The Australian Tax Office is cracking down on investors cashing in on the Bitcoin boom and the complex regulations could catch out the unwary at tax return time. (Picture posed by models)
‘We are alarmed some taxpayers think the anonymity of cryptocurrencies provides a licence to ignore their tax obligations,’ ATO Assistant Commissioner Tim Loh said.
‘While it appears cryptocurrency operates in an anonymous digital world, we closely track where it interacts with the real world.’
Using data from banks, financial institutions, and cryptocurrency online exchanges, the ATO can follow the money back to individual taxpayers.
The ATO then matches data to tax returns to make sure investors are paying the right amount of tax.
And with the value of some cryptocurrencies soaring in recent years, that could land some investors in hot water at tax time.
‘The biggest pitfall with cryptocurrencies is not reporting the income or gains in the first place,’ warns Mark Chapman, Director of Tax Communications at H&R Block Australia.
‘The ATO has signed a series of data matching agreements with exchanges so they’re able to find out who’s been trading Bitcoins. It isn’t anonymous.’
ATO considers cryptocurrencies as investments like stocks and shares rather than an everyday currency like the dollar in your wallet.
That means that whenever you use your cryptocurrency, you need to know how much it was worth at that moment compared to when you bought it.
It doesn’t matter if you’re selling your cryptocurrency, using it to buy something or swapping it for another cryptocurrency instead.
If the cryptocurrency is worth more when you use it than when you bought it, you may need to pay capital gains tax on the difference, after your costs are factored in.
The only exception is if you buy small amounts and use it like actual dollars and cents to purchase everyday items, rather than holding onto it as an investment.
The ATO considers cryptocurrencies as investments like stocks and shares rather than an everyday currency like the dollar in your wallet, which means you can be taxed on profits
The key to avoiding an audit and potential hefty penalties is to make sure you keep meticulous records every time you buy and sell, says the ATO in its online guidelines.
You need to know exactly how much your cryptocurrency was worth in Australian dollars every time you buy it and sell it or use it.
Subtract the cost of exchanging the cryptocurrency plus any other fees and that’s the profit you’ll need to declare on your tax return for capital gains tax.
If you keep hold of the cryptocurrency for a minimum of 12 months, it could actually qualify for a capital gains tax discount too.
And if you lose money on the investment, it could actually lower your overall tax bill too.