HY Accounting Blog

Cryptocurrency and Tax

One of the things investors like best about cryptocurrency is that it is anonymous. You are not required to reveal any information whatsoever about your personal identity in order to hold a crypto address. However, many people make the mistake of assuming that the currency’s anonymity makes it impossible for their account to be tracked back to them, so they don’t report their crypto activity on their tax returns.

Unfortunately, they could not be more wrong. And according to Tim Loh, Assistant Commissioner of the Australian Tax Office, the ATO finds this assumption alarming. He said, “While it appears cryptocurrency operates in an anonymous digital world, we closely track where it interacts with the real world through data from banks, financial institutions and cryptocurrency online exchanges to follow the money back to the taxpayer.”

Crypto and Tax

Unfortunately, the tax regulations related to cryptocurrencies are a bit complex. As such, it can be taxed as Income Tax or Capital Gains Tax. Your tax obligation will depend on whether you are classified as a trader who buys and sells within days or an investor who holds on to their crypto longer. Investors who don’t sell their crypto for at least 12 months get a 50% discount on their tax.

There are other provisions for those who are paid in crypto or receive it in payment for goods and services. There are even different regulations for whether you donate it or accept it as a gift.

Be Aware that the Australian Tax Office Is Cracking Down on Crypto

The ATO understands that dealing with cryptocurrencies can be a complicated endeavour, and they are making an effort to help taxpayers get their reporting correct. The ATO will prompt 300,000 taxpayers to report any crypto gains and losses as they file their 2021 tax returns.

The Office will also contact 100,000 people who hold crypto assets to explain what their tax obligations are, advising them to review previous returns. Failing to report any crypto assets will automatically prompt penalties, maybe even an audit, but correcting your previous returns can reduce those penalties significantly.

How to Organise Your Crypto Trade Documents for Tax Time

You will need to provide the following information for each of your cryptocurrency transactions:

  • Date of transaction
  • Value in Australian dollars at the time of transaction
  • Purpose of transaction and cryptocurrency address of the other party

You are required to keep these records for five years after the transactions were completed or after the records were prepared, whichever is later. If you’d prefer to let an accountant work out the records and file for you, you can simply supply the statements and transaction histories.

Alternatively, there are a number of software providers like Koinly that can do the heavy lifting of getting your crypto trades organised and ready for your tax agent.

HY Accounting has a great deal of experience with cryptocurrency taxes. If you’ve any gains or losses this year with cryptocurrency investments and aren’t quite sure of how to include them on your tax return, we would be more than happy to help.