31st January 2018
Over the past several months, bitcoin has made headlines across the globe as the cryptocurrency’s value has skyrocketed to unprecedented heights. The now infamous digital coin, which was valued at just slightly below one thousand dollars a year ago, shot up to twenty thousand dollars late last year. As the currency has rocketed into the mainstream spotlight, the Australian Tax Office (ATO) has taken notice. The government agency is currently in the process of establishing a cryptocurrency taskforce to monitor transactions.
The role of the ATO’s cryptocurrency taskforce
Not surprisingly, the task force’s main purpose will be to ensure investors in cryptocurrency are paying their fair share of tax. Though, due to the decentralised nature of cryptocurrency, it can be difficult for governments to track.
The task force will include specialists in technology, banking, tax law and finance, who will work together to devise strategies to track gains from cryptocurrency investments.
“We are consulting with key stakeholders who have expressed an interest in tax issues relating to cryptocurrencies...We will discuss common queries and scenarios, practical issues and the tax implications for current and anticipated future developments in relation to cryptocurrencies,” an ATO spokesman said.
Banks are also likely working with the ATO to track investment gains. Late last year, there were reports from cryptocurrency investors that their Australian bank accounts were being frozen, and they were unable to transfer money to cryptocurrency exchanges due to bank bans. And when it comes to cryptocurrency, the banks can also assist the ATO in another way. Large transactions from bank customer accounts can be flagged and then reported to the ATO. These reports could reveal large amounts of money flowing in and out of the cryptocurrency market.
As for the ATO task force, the first meeting is scheduled to take place in February.
How will cryptocurrencies be taxed?
As more and more tax specialists receive a flood of inquiries concerning cryptocurrency tax filing, one tax specialist reported to AFR that the ATO is still considering the best way to tax transactions of digital currencies.
Australia isn’t the only government concerned about cryptocurrency
The cryptocurrency boom of the past year has worried governments across the globe. The South Korean government, for example, recently inspected a half dozen banks to confirm that cryptocurrency transactions complied with tax law. The reason for their, and most government, concerns is that the market is typically seen as a tax haven, and a platform for money laundering and tax evasion.
Governor of the Reserve Bank of Australia, Philip Lowe, reinforces these concerns, noting that cryptocurrencies can be used for illegal purposes.
“When thought of purely as a payment instrument, it seems more likely to be attractive to those who want to make transactions in the black or illegal economy, rather than everyday transactions,” Lowe said.
As cryptocurrencies increase in popularity, it will only be a matter of time till governments around the world find the best way to tax and track the digital coins.