The Tax Office has urged advisers and taxpayers alike to heed its guidance on accounting for cryptocurrency come tax time, when it will be looking to ensure that all capital gains events are accurately reported — not just gains.
Speaking at a tax-time tips seminar on Thursday, ATO assistant commissioner Adam O’Grady warned tax agents and taxpayers that his office will be closely watching all capital events related to cryptocurrency come tax time.
“It is really important for all capital assets; we will be looking to ensure that the people have reported the capital gains events — and this is for both gains and losses,” Mr O’Grady said.
Mr O’Grady urged tax agents to make use of data pre-filled by the ATO. He said that in addition to using pre-filled data to assist agents submit accurate returns, it will also be using data supplied by Australian cryptocurrency exchanges to cross-reference returns.
“We get information and data on property sales from all the state and territory revenue offices,” he said. “We have very good shares data as well and it’s available as a pre-filled service [where] you can download different shares transactions for your clients.
“We are also getting cryptocurrency information from Australian scientists as well. So we’ll be using that information to look at returns as they come in.
“And when people have had significant capital gains events according to that data, if it’s not reported in the return, we’ll be looking to hold those returns and again enquire with you and with your clients as to where those transactions are.”
Mr O’Grady stressed the importance of reporting all capital gains events — whether they be losses or earnings — to avoid unwanted attention from the Tax Office.
“One of the emerging themes we are seeing in the capital gains space is losses not being reported through the tax return. It’s really important to still report those losses through the return,” he said.
“Not only does it avoid us having to follow up as to why you haven’t done that for the year, and while it may not be a financial impact to you, or the clients this year, because those losses are quarantined. It applies for future years.”
Mr O’Grady’s warnings follow the beginnings of an ATO crypto compliance crackdown last year, as the pandemic prompted a marked increase in consumer investment.
The Tax Office has since allocated substantial resources into cryptocurrency data matching and the promotion of taxpayer obligations for those buying, selling and holding crypto assets.
The ATO last year said that it would work with designated service providers, or DSPs, to obtain data used to identify buyers and sellers of crypto assets and quantify related transactions.
The Tax Office then uses data provided by DSPs and cross-references them against ATO records to identify individuals who may not be meeting their registration, lodgement or payment obligations.
Last year, the ATO took a good-faith approach to those who had failed to meet their crypto asset tax obligations, but it isn’t expected to last much longer, according to H&R Block director of tax communications Mark Chapman.
Mr Chapman in February said that now is time for those involved in cryptocurrencies to pay attention to the “tax side of things”, before the ATO ramps up enforcement of undeclared crypto assets.
“I think the first thing to say is that the ATO has, within the last year or so, started gathering data from cryptocurrency exchanges, the actual providers,” he said. “As a result of that, I think the ATO now has a much better understanding of who’s involved in this market.”
While the ATO has been expected to ramp up auditing around cryptocurrencies for the past three years, and hasn’t, its “light touch” isn’t expected to last much longer.
The ATO first showed signs of cracking down on compliance in March last year, when an undisclosed number of letters were sent to taxpayers, warning them to come clean with their capital gains or losses.
“Quite a few clients and non-clients have received these letters from the ATO, flagging that there’s a mismatch in their data,” Mr Chapman said. “And I think that’s prompting a lot of people to come in to see their tax agent, or maybe to see a tax agent for the first time if they’ve been doing it themselves.
“But I’m not convinced that [the ATO’s light-touch approach] will necessarily last forever.
“I think, as the data comes in, as the ATO has a greater awareness of how many people are in this space, they will start to take a slightly firmer line.”