You might want to keep your crypto earnings private, but if you think the ATO’s looking over your shoulder, the point may be moot. Is the ATO actually looking over your crypto trail as you make it?
The short answer is yes. The ATO can very well track your crypto information through financial institutions, banks, and information from cryptocurrency exchanges. In other words, the ATO can track how crypto interacts with the real world.
Plus, more than one million Australians own crypto assets, giving the ATO all the more reason to track their funds. And more than one in ten hold assets like Ethereum, Ripple, Bitcoin, Dogecoin, and Solana.
But is the ATO actually breathing down your neck when you make crypto payments? Let’s find out.
How Does the ATO Track Crypto?
Your data is likely already on the ATO files if you possess an account with an Australian cryptocurrency designated service provider (DSP).
The Australian tax office began tracking crypto in 2019 when it integrated a data-matching program that focused on crypto transactions and helped identify buyers and sellers of crypto.
After identifying the buyers and sellers, the ATO matched their data against the data provided by DSPs. This helped identify individuals who needed to meet yearly reports, submissions, payment obligations, and registrations.
What Information Can the ATO Get?
If you are working with a DSP, they are legally bound by Australian law to provide all crypto information to the ATO. So, the ATO has access to all your “know the customer” (KTC) or personal information, including:
- Names
- Phone numbers
- Home addresses
- Work addresses
- Bank account details
- Transaction values and dates.
Am I Liable to Pay Tax on Cryptocurrency? How Will I Be Taxed?
You are automatically liable for taxes if you work with a DSP. However, that only happens if you sell an asset. In that case, you will have to calculate either your capital loss or gain and then file those details in your tax returns.
The tax calculations for your cryptocurrency are taxed as capital gains tax (CGT) assets. These include cryptos like non-fungible tokens (NFTs) and coins.
However, investors who lock their currently-held coins or NFTs to authenticate transactions on the blockchain and receive additional coins or tokens in return will get the rewards taxed as ordinary income.
Moreover, according to the government, cryptocurrency isn’t considered a foreign currency like USD or GBP when calculating taxes. That’s why it’s liable to taxes at the same rate as your annual income. However, a 50% CGT discount is typically applied to crypto investments held for more than a year.
How Do I Calculate My Capital Gains or Losses?
You have a capital loss if you’ve sold your cryptocurrency assets for a lower price than when you bought them. But you have a capital gain if you sell your assets for a higher price than when you bought them.
However, to calculate these losses or gains, you will first have to convert your crypto assets (coins or NFTs) into Australian dollars. You can perform this conversion through the exchange rates provided by a specific digital currency exchange.
Next, you can use ATO’s online calculator to work out the CGT.
What Difference Does It Make If I’m a Trader or an Investor?
In most instances, people will fall under the investor category and incur CGT taxes. Being an investor means you’re holding some assets for investment. That means you’re hoping for them to grow in value and increase your capital gains. So, as an investor, you’ll be taxed under CGT rules.
In contrast, you will be considered a trader if you’re trying to maximise profits through large cryptocurrency transactions. This approach is opposite to the buy-and-hold approach to cryptocurrency. That means the profits of your trades will be liable to tax under trading stock rules instead of CGT rules.
What Information Do You Need to Fill in Tax Returns for Cryptocurrency?
You’ll have to keep a record of your capital gains or losses and the value of the cryptocurrency in Australian dollars at the time. The purpose of the transaction also has to be stated.
Keeping all digital wallet records, exchange records, and receipts can be useful when you’re filing your tax returns.
Click here to contact Accounting Tax Solutions today for help with your cryptocurrency or business needs.