• Deborah Roscoe

Cryptocurrency Transactions Not Untraceable - ATO Data Matching Program Extended

From what I have heard from some clients, colleagues and friends a number of people have been dabbling in investing in various cryptocurrencies.

While calling cryptocurrency an "investment" might be contentious particularly on the traditional financial side of the fence, the Australian Tax Office is making it clear that you need to be recording for your capital gains and/or capital losses on transactions that are closed during a financial year.

By "closed" transactions I mean you have purchased and sold a specific parcel of cryptocurrency during a financial year, eg for the financial year just ended: 1 July 2020 to 30 June 2021. If you shorted a cryptocurrency transaction, then you have sold and then purchased to have a closed transaction during the financial year.

Any purchases made during the year that you still hold are unrealised capital gains and losses and do not have to be recognised for tax purposes until they are sold.

While there are arguments about potentially being a cryptocurrency trader, the ATO has very strict requirements on what a trader is and therefore taxed essentially as a business and outside the capital gains tax regime. This needs to be addressed on a case by case basis and there is a reasonable amount of case law to support the ATO stance on this contentious issue.

So back to the ATO Data Matching Program, a number of people say that they don't have accurate records on cryptocurrency transactions, unfortunately that won't quite cut it with the ATO and the onus is on you to keep accurate and complete records. The ATO has extended it's data matching program for cryptocurrency transactions and account information from the designated service providers for another 3 financial years.

The ATO will be identifying buyers and sellers of cryptocurrency with an aim to detect taxpayers who have closed transactions out during a financial year but have not recorded the capital gain or loss in their tax return.

The ATO has warned that while taxpayers believe cryptocurrency is via an anonymous online digital world, the data collection allows the ATO to trace data from online cryptocurrency exchanges and financial institutions back to the flow of funds from the relevant taxpayer.

With the ATO intending to retain the data collected for 7 years, the ATO will be able to go back to the relevant taxpayer retrospectively, with no doubt penalties and interest charges. It is best to ensure you provide and maintain complete and accurate transaction records of all "investments" including cryptocurrency assets.