Many cryptocurrency investors believe that the ATO cannot detect cryptocurrency transactions, but the ATO has more information than you think and it is important to ensure that any cryptocurrency transactions are included in the correct place on your tax return. If you haven’t sold cryptocurrency, you may not realise that you have made a capital gain or loss.
In the last few years, cryptocurrency has become increasingly popular and the value of some coins has skyrocketed. This has led to significant capital gains for many cryptocurrency investors. It’s the capital gains that can cause problems in your relationship with the ATO. If you have made a capital gain from cryptocurrency, it is important to report this in your tax return.
The ATO is aware of cryptocurrency and the capital gains that can be made from it. It has released guidance on how to report these gains, which you can find on its website (https://www.ato.gov.au/General/Other-languages/In-detail/Information-in-other-languages/Cryptocurrency-and-tax/). In a nutshell, the ATO requires you to report any capital gain or loss from the disposal of cryptocurrency in your tax return. This includes swapping one cryptocurrency for another.
The other thing to consider is what the way you’re managing your cryptocurrencies means for your tax needs. If you’re keeping cryptocurrency on an exchange, the ATO treats it as being in the same way as owning the currency. This means any profits or losses from selling cryptocurrency would need to be included in your capital gains tax return. However, if you’re storing cryptocurrency in a digital wallet, you’re considered to own the cryptocurrency and will need to include any profits or losses in your income tax return.
If you’re buying cryptocurrency to hold as an investment, you’re considered to be an investor. Most people fall into this category. If you’re buying and selling cryptocurrency as part of your business, or in a ‘businesslike manner’, however, you’re considered to be trading in cryptocurrency, which has different tax implications. To boil it down, investors will likely pay Capital Gains Tax on what they earn, while traders will pay income tax on the money their crypto nets them.
Whichever way you choose to report your cryptocurrency transactions, it’s important that you include them in the correct place on your tax return. Ignorance of the tax laws when it comes to cryptocurrency is not an excuse, so make sure you’re aware of what you need to do to stay on top of your obligations.
If you’ve got any questions about your tax needs around your cryptocurrency investments, get in touch with us here at Liquid Tax. We can walk you through what you need to do, and help you get it sorted out, no stress!