What has happened?
The Australian Taxation Office (ATO) recently announced that it has started collecting customer and transactions data from cryptocurrency digital providers, where individuals and businesses buy, sell and transfer cryptocurrency.
What does this mean?
The ATO views bitcoin and other cryptocurrencies as property and not currency.
When bitcoin and cryptocurrencies are sold for a profit, the Australian resident taxpayer is liable to pay capital gains tax (CGT).
The ATO signalled a crackdown in January last year when it began "external consultations" on how to ensure that cryptocurrency investors and traders are paying the correct amount of tax.
The ATO is now going through a data-matching exercise to verify that ‘purchase and sale’ information in respect of cryptoassets matches taxpayer records.
This will enable it to ensure that anyone trading in cryptocurrency is paying the correct amount of tax.
The ATO said:
"Data will be cross-checked against previous and future lodgements. This may help us identify businesses that may need further advice and guidance of the rules around the tax treatment of cryptoassets."
Australian individuals and organisations trading in cryptocurrency may soon therefore be contacted by the ATO if the information collected in the data-matching exercise flags any discrepancies with their tax records.
Anyone contacted by the ATO in this way will have at least 28 days to clarify any information that has been obtained from the data-matching provider.
The ATO added:
"If you are involved in acquiring or disposing of cryptocurrency you must keep records in relation to your cryptocurrency transactions."
What to do now?
A taxpayer involved in the acquisition or disposition of cryptocurrency must keep records in relation to their cryptocurrency transactions.
If the cryptocurrency is held by the taxpayer for more than 12 months before being sold or used, they may be eligible for the 50% CGT discount.
Taxpayers must make sure they disclose their income details (including those in respect of cryptoassets) to the ATO correctly.
Where taxpayers have made an error or omission in their tax return they should contact the ATO as soon as possible.
Penalties will be reduced where the ATO is contacted prior to the audit.
If the taxpayer has dealt with a foreign exchange and/or cryptocurrency, there may also be taxation consequences for the transactions in that foreign country.
If in doubt, a taxpayer should seek professional advice.
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