With the recent downturn in the cryptocurrency market, there is likely to be a good number of investors that will be reporting losses. The Australian Tax Office (ATO) is however flagging this as an issue of concern that investors need to be more careful about at tax time.
According to Assistant Commissioner, Tim Loh, many taxpayers that have made this investment are making mistakes when it comes to lodging their crypto losses. Given the market trend that has seen a sharp rise in the popularity of these stocks since the pandemic, he acknowledged that the ATO expected to see more records of capital gains and capital losses. He confirmed that last year alone, there were about 300,000 first-time investors in cryptocurrency recorded.
A mistake he highlighted during lodgements was offsetting crypto losses against salary and wages. Investors are being advised that if they have disposed of a crypto asset in this financial year, they will need to calculate their capital loss or gain, and include this information on their tax return. This also applies to investment in non-fungible tokens (NFTs).
Loh confirmed that crypto losses would for most people only be offset against capital gains and not income. He said that the tax consequences would be dependent on facts and circumstances, but for those that were investors, it would not be possible to offset the losses against their salary or wages. Only those that can convince the ATO that they were actually carrying out cryptocurrency trading as a business may try to offset this loss against income. Loh however noted that this determination would depend on what questions the tax agents would ask of the client.
Investors have been further advised that they can offset their losses against capital gains made from other investments, including trading done in shares and property. If it was not possible to carry out such an offset, they could then carry forward the loss to future income years, to offset the losses against future capital gains. He advised tax agents with clients intending to carry forward capital losses to ensure this was indicated in their returns.
Record keeping is another area the ATO is expected to focus on, with the authority confirming it will take legal action against those who purposely attempt to increase their refunds, falsify records or fail to substantiate their claims. Taxpayers with rental properties have also been waned to ensure they detail all the income they have received in tax returns.
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