Are your life savings invested in cryptocurrency? Beware, the ATO may knock on your door reminding you about your tax obligations.

What is Cryptocurrency?

Cryptocurrency is a form of virtual currency which can be bought and sold on the stock market or on various e-trading forums. This = form of financial technology uses the block-chain platform and operates on a decentralised network.

Cryptocurrency is an emerging area of financial technology that remains unregulated in the market.

With no legislative framework governing the transactions on the blockchain ledger, statutory bodies have incorporated provisions in the National Anti-Money Laundering and Counter-Terrorism Financing regimes to accommodate for this new-age virtual currency.

What does this mean for you?

The ATO recently announced that it is obtaining data from cryptocurrency designated service providers to match against Australian tax returns to identify cryptocurrency traders participating in black economy fraud and evasion.

In Australia, cryptocurrency is regarded as an asset which is held or traded as opposed to money or a foreign currency. This means that there is a potential capital gains tax liability every time cryptocurrency is bought and sold. The ATO estimates that between 500,000 to one million Australians have invested in “crypto-assets”.

Through data matching technology, the ATO will assess compliance with taxation obligations against cryptocurrency activity. The ATO intends to use this technology to identify individuals and businesses who have engaged in cryptocurrency trading since 1 July 2014.

Those who are identified as failing to disclose their income details correctly will be contacted by the ATO and provided with 28 days to clarify the information the ATO has collected.

Ultimately, tax implications will depend on the purpose for which the currency is being used for. The ATO recognises two types of purposes in this regard:

  1. business related; or
  2. isolated transactions.

As cryptocurrency is seen as a capital gains tax (CGT) asset, CGT may be discounted under the CGT discount provisions, permitting that the cryptocurrency is held for at least 12 months.

If you are being audited by the ATO’s data matching scheme, it is important that you have an experienced taxation lawyer on your side. Contact the Taxation team at Antunes Lawyers on (02) 9964 0499 so that we can guide you through the review or audit of your taxation affairs.

Contact us