John Clarke on sorting out your Cryptocurrency and Tax

Updated: Jun 17

What does the Australian Tax Office know about your Cryptocurrency?


600,000 Australians with cryptocurrencies


Cryptocurrencies and block chain technology have captured the interest of many Australians.


The Australian Taxation Office (ATO) estimates there are 600,000 Australian taxpayers that have invested in crypto currencies in the past few years. In late July a colleague said that he thought one in five of his fly-in fly-out clients had cryptocurrency.


Types of cryptocurrency, john Clarke
Types of cryptocurrency

What are the ATO issues with cryptocurrencies


The first is that there can be a genuine lack of awareness of the tax consequences of dealings in cryptocurrencies. A person who is a tax resident of Australia is required to declare all their income on their Australian tax return including income earned from non-Australian sources.


The second is that some people might try to use the anonymous nature of cryptocurrencies to avoid tax.




What is the ATO doing?


The ATO has a crypto currency data matching program. The tax office can make Australian providers of crypto currency services provide them with information about their clients. For the 2021 financial year the Taxation Office is writing to 100,000 taxpayers and will prompt about 300,000 taxpayers when they are lodging their returns.


This means the ATO currently knows at least 50% of the Australians who have had cryptocurrency dealings in the past year.




Are cryptocurrencies untraceable?


There was a recent ransom in America which was paid by Bitcoin. Within days of the ransom being paid by Colonial Pipeline, the FBI had recovered more than half the Bitcoins that had been paid.


What kind of transactions might need to be reported?


There may be capital gains tax when crypto currency is disposed of. The disposal could be a sale or gift. It could also be exchanging one cryptocurrency such as Bitcoin for say Ethereum, or when you convert the crypto currency to Australian or foreign currency, or it is used to buy goods or services.


Sometimes your disposal of cryptocurrency will be treated as ordinary income, that is not a capital gain.

Each cryptocurrency is a separate asset for Capital Gains Tax.


What happens if I am in business and sell goods in exchange for a cryptocurrency.


Tesla, at one stage was accepting Bitcoin, for the sale of cars. If Tesla was in Australia, then for tax purposes it would work as follows. I buy the car and pay for it in Bitcoin. At the time the deal was struck the value of the Bitcoin I was using to pay was $100,000 Australian dollars. This value of $100,000 needs to be shown in my sales. Six months later Tesla needs the money and disposes of the Bitcoin. Unfortunately, instead of $100,000 they only receive $20,000 Australian dollars. The taxable income for Tesla is still $100,000 that is the value of the Bitcoin when the car was sold and not $20,000.


Success Tax Professionals Port Macquarie can help you with your cryptocurrency transactions for 2021 and earlier tax years. We use technology to make what can be a large task if there are hundreds or thousands of transactions manageable.


The advice in this article is general in nature and does not take into account your personal situation.



Do you have a tax or accounting question?