The Australian Taxation Office (ATO) will now chase citizens who hide their gains via cryptocurrencies.
In order to determine how the cryptocurrencies would be taxed by the ATO it is important for them to define how they classify cryptocurrencies, says Liz Russell, senior tax agent at Etax.com.au. Despite the long-running debate over whether cryptocurrencies are an asset, currency, or collectable, the ATO has made it clear they consider them assets.
The taxation office plans to chase citizens who hide their gains through “ramped up data-matching services that will also target unexplained assets and wealth,” reports the Australian Financial Review. Although cryptocurrencies are often viewed as anonymous, once they are traded in for fiat currency there are "hundreds of data sources" to track unusual deposits, says Russell.
Several people are already in the midst of a fight with ATO on how their gains from cryptocurrency, like Bitcoin, should be taxed. Paul Drum, the head of policy for CPA Australia, estimates hundreds of thousands of taxpayers will soon make declarations relating to cryptocurrencies in their tax return forms. Drum further states that cryptocurrency owners who plan to fly under the radar are in for some “bad news.” Because the ATO views cryptocurrency as assets, when sold for profit they are liable for capital gains tax and therefore will need to be added to your assessable income at the end of the financial year, “much like you would any gains you make on the sale of shares or an investment property," Russell told the Australian Financial Review. In the same way, if you incur a loss on cryptocurrency then they are viable to be a write-off.
Exceptions to the rule
There are, however, exceptions. Currently there is no tax imposed on cryptocurrencies if they a held onto. If the cryptocurrency is held for more than 12 months, then sold by an Australian resident taxpayer, then they may be eligible for a 50% reduction in capital gains tax, as they would be seen as an ‘investor’.
Additionally, if the cryptocurrency is worth less than AU$10,000 and is kept for personal use and enjoyment, then it is eligible for a “personal use exception”. However, the ATO states that the "longer the period of time that a cryptocurrency is held, the less likely it is that it will be a personal use asset." After a certain period of time of holding onto Bitcoin, the owner turns from an investor into a trader. Although the ATO did not provide a strict length of time, if they do consider you to be a trader then your gains from the cryptocurrency can be taxed as income.
According to the Australian Financial Review, Another way to dispose of your cryptocurrency without having to pay capital income tax is to visit ‘tech savvy’ locations which accept cryptocurrencies as payment, as in these locations no capital income tax is payable when using cryptocurrency.