The taxation of cryptocurrencies is a contentious issue at the moment. Regulators worldwide have taken a serious interest, particularly because certain investors are generating enormous profits from the crypto market, some of which are not recorded on tax returns. Australia’s tax authorities are the latest to act in this direction, warning would-be cryptocurrency and NFT millionaires that any earnings from the emerging digital revolution must be taxed.
The ATO reminded taxpayers that capital gains tax (CGT) applies to cryptocurrency just as it does to non-fungible tokens or NFTs. Tim Loh, the associate commissioner at the Australian Tax Office, spoke with news.com.au, a local news source. He emphasized that the ATO views cryptocurrency as an asset, not a currency. As a result, it becomes taxable under this heading.
“We are alarmed that some taxpayers think that the anonymity of cryptocurrencies provides a license to ignore their tax obligations,” ATO Assistant Commissioner Tim Loh said.
Loh stated that, in order to explain its tax requirements and urge them to revise their previously filed returns, ATO will directly contact around 100,000 taxpayers with bitcoin assets.
“We also expect to prompt almost 300,000 taxpayers as they lodge their 2021 tax return,” Mr Loh said.
If it’s Crypto Its Taxable
Loh noted that under the capital gains tax structure, crypto investments and their associated taxes will be taxed similarly to stocks. When cryptocurrency is exchanged for cash or other digital assets, it becomes taxable, explained Loh. Similarly, this is true for other types of cryptocurrencies, such as NFTs.
Movements within a digital wallet are also counted, therefore it is incorrect to believe that tax is only due if all of your crypto holdings have been sold.
“For example if you exchange Bitcoin for Ethereum, that would trigger a taxable transaction. If you swap cryptocurrency for Australian dollars is another potential taxable transaction and when you buy goods and services with cryptocurrency it can also potentially create a taxable transaction,” he continued.
While the Australian Taxation Office has been monitoring cryptocurrency activity for a long time, their research indicates that trade volume has increased significantly since the beginning of 2020, therefore the agency will dedicate significant resources to auditing the coming year’s returns.
“We actually have data matching protocols with these cryptocurrency exchanges and they provide us with that information. We track how it interacts with the ‘real world’. This is a game of hide and seek – we want people to do the right thing.”
Advising tax payers on how to avoid failing their tax obligations, Loh said:
“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.”