Cryptocurrency Under The Microscope

The ATO is concerned that many taxpayers believe their cryptocurrency gains are tax-free, or only taxable when the holdings are cashed back into Australian dollars.  This isn’t the case.  With a dramatic increase in trading since the beginning of 2020, the ATO have their sights set on ensuring tax payers are accounting for any gains they have made.

This year, the ATO will be writing to around 100,000 taxpayers with cryptocurrency assets explaining their tax obligations and urging them to review their previously lodged returns.  The ATO also expects to prompt almost 300,000 taxpayers as they lodge their 2021 tax return to report their cryptocurrency capital gains or losses.

Gains from cryptocurrency are similar to gains from other investments, such as shares.  Like many other investments, holding a cryptocurrency for at least 12 months as an investment may mean the holder is entitled to a CGT discount if they have made a capital gain.  CGT also applies to the disposal of non-fungible tokens (‘NFTs’).

A disposal can occur when you:

• sell or gift cryptocurrency
• trade or exchange cryptocurrency (including the disposal of one cryptocurrency for another)
• convert cryptocurrency to fiat currency such as Australian dollars
• use cryptocurrency to obtain goods and service

The ATO matches data from cryptocurrency designated service providers to individuals’ tax returns, helping it to ensure investors are paying the right amount of tax.

Businesses or sole traders that are paid cryptocurrency for goods or services also need to be aware that these payments are taxed as income based on the value of the cryptocurrency in Australian dollars.