The ATO’s cryptocurrency data-matching program, announced in May last year, has now resulted in an undisclosed number of letters being sent out to taxpayers, warning them to come clean with their capital gains or losses.
Cryptocurrency records relating to up to one million individuals have been estimated to have been obtained by the ATO, with taxpayers given 28 days to clarify their information before compliance action begins.
In letters seen by Accountants Daily, the ATO states: “Information provided to us indicates you may have disposed of cryptocurrency in the [X] financial year.
“If you exchanged cryptocurrency for goods, cash or other cryptocurrencies, then this is normally considered a disposal for the purposes of capital gains tax.
“We’re giving you the chance to fix any mistakes now. If we audit you and find you haven’t reported your capital gain or loss correctly, we may charge you a penalty.”
H&R Block director of tax communications Mark Chapman, who has seen a number of clients walk in with such letters over the past week, said the game is up for Australians who believe they can escape their tax obligations when it comes to cryptocurrency trading.
“A common myth is that there are no tax implications or that the ATO will never know what you’re doing because cryptocurrency is, of course, an entirely online transaction, typically done through offshore exchanges,” Mr Chapman told Accountants Daily.
“And a lot of people think, well, how can you possibly know what’s going on with these things because I’m not doing anything in Australian dollars; that it is with this notional online electronic currency so the ATO will never know about it.
“Of course, as we’re seeing now, the ATO does know about it because they get the information from the currency exchanges in the same way they do with a lot of other data-matching programs.”
While taxpayers who are certain their income tax return is correct have nothing to worry about, those who have failed to report a capital gain or loss will be required to amend their tax returns within 28 days or face potential penalties.
Mr Chapman believes a longstanding myth around the CGT personal use exemption has led to a number of taxpayers failing to disclose their cryptocurrency transactions to their tax agent or from including it in their tax returns.
“The problem with cryptocurrencies is that there are a lot of myths around the tax treatment of these things,” Mr Chapman said.
“For instance, a common myth is if you’ve spent less than $10,000 on a cryptocurrency, you don’t have to pay capital gains tax because this thing called a personal use exemption applies, but that’s not true, unless you are actually using the cryptocurrencies for personal use.
“So, if you’re actually going to go out and spend it on stuff, then you might be able to claim that, but in most cases, people are buying cryptocurrencies with a view to either trading in them or as an investment, so that CGT exemption simply doesn’t apply.
“That’s a very common myth around cryptocurrencies, which probably needs to be dispelled. It’s been around for a few years now.”
Mr Chapman also believes accountants will have to be on the front foot and start asking clients about their cryptocurrency transactions.
“A lot of clients don’t understand that there are any tax implications, so they don’t mention it to their tax agent,” he said.
“So, the agent probably needs to be a little bit more proactive in terms of quizzing the client as to whether they’ve done anything in that space and teasing the information out and basically pulling them right in terms of the tax implications.”