Cryptocurrency and taxes: Can you end up paying ATO more than you have earned? | Cryptocurrencies

As the tax season approaches in Australia, cryptocurrency investors have been warned to start calculating what they owe.

Some lessons can be learned from the recent U.S. tax season, in which some enthusiasts found themselves with a tax bill that exceeded their income following the recent crash in the crypto market.

Mark Chapman, director of tax communications for H&R Block, told Guardian Australia that the company expects thousands of customers to seek help with their crypto investments this year, adding that they tend to have at least some knowledge of their tax liabilities.


But he worries about those who may not be aware of what they owe until they are in the crosshairs of the Australian tax office.

“There are a lot of people who do not have tax agents who simply do not understand the tax implications at all,” he said. “They go into cryptocurrency trading and they do not think about the tax consequences and they just do not think they need to disclose anything about the tax return.

“Or there is an even smaller group that is considering it but decides not to include it anyway.”

Cryptocurrency is not taxed in the same way as interest earned on money in a bank account. For example, if you bought Bitcoin at a value of $ 100 and its value increased to $ 500, you do not pay tax unless you pay it out, use it for a purchase, or exchange your Bitcoin for another cryptocurrency.

With the ATO indicating that it will pay close attention to cryptocurrency assets this accounting season, here’s what you need to know.

What tax do you have to pay on cryptocurrency profits?

If you withdraw your cryptocurrency to your regular bank account, you will have to pay capital gains tax (CGT) on the money you have earned. Any capital gain you realize will be added to your taxable income and taxed at your personal income tax rate.

You also have to pay tax when you exchange a cryptocurrency for another, use it to buy goods or services that are not for personal use, and give it away as gifts.

You can use cryptocurrency to pay for personal use of goods or services up to $ 10,000, such as for vacations or a car. But Chapman warned that the ATO would look closely at these types of transactions to determine if the final purchase was the only reason to buy cryptocurrency.

Cryptocurrency transfers are taxed when they occur, so even if the currency has lost value, you still have to pay tax on the amount exchanged or received.

If you are a cryptocurrency trader rather than an investor, there is a 50% reduction in capital gains tax if you have had the investment for a year or more.

ATO has a capital gains tax registration tool that it advises people to use. You will need to keep track of how much you spent investing in cryptocurrencies and then what you earned when you sold it.

What about NFTs?

If you have bought into the hype surrounding non-fungible tokens, whether it is a ‘bored monkey’ or Australian Opens alliance with NFTs, these are also considered investments and all profits are treated in the same way as cryptocurrency profits .

What if I do not declare it?

If you do not report your cryptocurrency profits, you may have problems with the tax office. ATO has been collecting cryptocurrency transaction data and account information from designated service providers since the 2014-15 fiscal year, and its data matching continues this year.

According to the ATO website, “the data obtained will be used to identify buyers and sellers of cryptocurrencies and to quantify the associated transactions. We will match data provided by designated service providers to ATO registrations to identify individuals who may not comply with their registration. -, reporting, archiving and / or payment obligations.

Isn’t there an easier way to do this?

Chapman said one question the federal government should consider as part of the Treasury Department’s review of the legal framework around cryptocurrency is whether its tax treatment is the right choice.

“Currently, we are trying to adapt cryptocurrency processing in an existing framework designed for other types of assets,” he said.

“People who invest in cryptocurrency often buy and sell quite often.”

Chapman said some customers would make statements that include hundreds of lines documenting the purchase and sale of cryptocurrencies, and the capital gain should be calculated on each transaction.

“I really think our cryptocurrency tax laws should probably be looked at and maybe just refined.”

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