ATO signals crypto crackdown as tax time looms

The Tax Office will move to engage around 100,000 taxpayers ahead of tax time to alert them to their tax obligations as it moves to firm its stance on accounting for cryptocurrency. 

The ATO on Friday warned that it would write to about 100,000 taxpayers to alert them to their tax obligations amid growing concerns that taxpayers believe their cryptocurrency gains are tax-free or only taxable when their holdings are cashed into Australian dollars.

ATO analysis shows that there are more than 600,000 Australian taxpayers who have invested in crypto assets following surging interest throughout the pandemic.

ATO assistant commissioner Tim Loh expects his office’s proactive engagement to prompt almost 300,000 to lodge their 2021 tax returns.

“This year, we will be writing to around 100,000 taxpayers with cryptocurrency assets explaining their tax obligations and urging them to review their previously lodged returns,” Mr Loh said.

“We also expect to prompt almost 300,000 taxpayers as they lodge their 2021 tax return to report their cryptocurrency capital gains or losses.”

The ATO’s crackdown follows a softer, educative approach adopted through the 2020 income year. Last year, the Tax Office contacted 100,000 taxpayers who had traded crypto assets and prompted 140,000 taxpayers to lodge returns.

Mr Loh said his office was concerned to learn that the anonymous nature of trading crypto assets led taxpayers to believe their investments were untraceable. He said this year the ATO will head into tax time with access to more data and the ability to track those investing in crypto assets more closely.

“We are alarmed that some taxpayers think that the anonymity of cryptocurrencies provides a licence to ignore their tax obligations,” Mr Loh said.

“While it appears that cryptocurrency operates in an anonymous digital world, we closely track where it interacts with the real world through data from banks, financial institutions and cryptocurrency online exchanges to follow the money back to the taxpayer.”

The ATO will employ data-matching methods to link transactions from cryptocurrency-designated service providers to individuals’ tax returns, to ensure investors are paying the right amount of tax.

The warning is the latest in a series of crypto messaging efforts mounted by the Tax Office this year. ATO assistant commissioner Adam O’Grady last month warned tax agents and taxpayers that the Tax 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,” he said.

The messaging was echoed by Mr Loh, who on Friday took to ensuring taxpayers were aware that all transactions — including buying, selling, swapping or exchanging one currency for another — are subject to capital gains tax and must be reported.

Mr Loh urged those invested in crypto assets to keep comprehensive records, even if only the wallet address of the other party was involved in a trade.

“The best tip to nail your cryptocurrency gains and losses is to keep accurate records including dates of transactions, the value in Australian dollars at the time of the transactions, what the transactions were for, and who the other party was, even if it’s just their wallet address,” Mr Loh said.

For those who accept cryptocurrencies as a form of payment for goods and services, Mr Loh said, payments will be taxed as income, based on whatever the value of the cryptocurrency is in Australian dollars.

Mr Loh said that penalties would be softened for those who amend errors in their tax returns, before warning that a failure to report capital events will attract the ATO’s attention, and potentially result in an audit.

“If you realise you’ve made a mistake and correct your return, we will significantly reduce penalties,” he said. “However, failing to report on crypto assets and not taking action when reminded will prompt penalties and potentially an audit.”

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