Tax time warning to crypto owners

Crypto owners are being warned of a tax-time crackdown as millions of Australians prepare their end of financial year returns.

The Australian Taxation Office has warned Australians that capital gains – including crypto – are one of their biggest priorities this tax time, and have crypto holders who may have omitted cryptocurrencies in prior tax returns in their sights.

With an estimated 4.5 million Australians estimated to currently invest in cryptocurrency, the ATO has used a data-matching program since 2019 to monitor crypto transactions, and ensure tax law compliance.

The ATO program allows the tax office to obtain data from cryptocurrency exchanges and match it with taxpayer records in order to pinpoint discrepancies.

Experts have warned “there are no excuses” if gains or losses from crypto transactions are omitted in an individual’s tax returns.

Danny Talwar, head of tax at crypto tax calculator Koinly, said one of the most common mistakes Australian crypto owners made was simply not understanding the country’s capital gains rules, and how they apply to digital currencies.

He said while most Australian investors were aware that converting crypto into Australian dollars needed to be reported to the ATO, most people didn’t know that they also needed to report any instance where one cryptocurrency has been used to purchase another.

“From a tax perspective, you must record the purchase price, sale price and the market value of the second crypto asset you’ve acquired,” he said.

“Not keeping proper records is a big mistake when it comes to tax time.

“With the ease of trading crypto on exchanges, it’s easy to forget what you’ve done in crypto during the financial year.

“However, this will be no excuse to the ATO and it’s important to keep proper records of crypto trades during the tax year to stay compliant with the law.”

Mr Talwar said using a crypto tax calculator would save users a “tremendous” amount of time and help them stay compliant with the tax law.

AA – NFT and Crypto explainer

ATO Assistant Commissioner Tim Loh said consulting with a registered tax agent was the best way to ensure compliance.

“In most situations, crypto is subject to capital gains tax and not considered to be a personal use asset. Withdrawing or selling your crypto at a crypto ATM, doesn’t necessarily qualify you to the ‘personal use’ asset exemption,” he said.

“If you are trading or investing in crypto assets, you are required to report the gains or losses when you dispose of them in your tax return.

“Most taxpayers hold crypto assets as an investment and most activities involving crypto amount to a taxable transaction, which, for investors, usually gives rise to a capital gain or loss.”

He said the best thing people can do was actively keep track of their crypto dealings.

“Records, records, records. We recommend setting up a recordkeeping system as a matter of priority, as we’ve found that the ease of transacting with crypto means that taxpayers often find it tricky to report correctly at tax time,” he said.

Elsewhere, the ATO will be cracking down on three other “priority” areas this tax time, where Mr Loh said the ATO had continued to see mistakes being made.

“Within these areas, we have identified common mistakes, and are particularly focused on addressing these and supporting taxpayers and registered tax agents to get their claims right this year,” he said.

Changes to work-from-home deductions are now in effect, with Australians no longer able to claim the blanket 80-cents-per-hour rate of previous years.

Instead, taxpayers must now use the actual cost, or the revised fixed-rate method (up to 67 cents per hour) to claim work-from-home deductions,

There have also been changes to record-keeping requirements, and as of March 1 this year, Australians working from the confines of their home must keep a record for all hours worked for the entire financial year.

Changes to rental-property deductions are also under the microscope this year, after the ATO found up to 90 per cent of landlords were getting their return wrong.

The tax office has flagged it will be particularly focused on interest-expense claims.

Australians with side-hustles have also been warned to do the right thing when it comes to their tax returns, with the ATO set to make sure any income earned aside from their day job, including gig-economy work, is properly declared.