Cryptocurrency or crypto is used to describe any form of currency that exists digitally or virtually which uses cryptography to secure transactions. Instead of being physical money, it exists purely digitally, is traded on digital currency exchange platforms and is stored in digital wallets. This means that whilst you own cryptocurrency, you don’t own anything tangible. Instead, you own a key that allows you to move a unit of measure from one person to another.
Cryptocurrencies run on a distributed public ledger called blockchain, which is a record of ALL transactions updated and held by currency holders. As new data is recorded e.g., data from a trade, it is recorded into a fresh block. Once the block is filled with data, it is chained onto the previous block, which makes the data chained together in chronological order. There is no way of editing the chain. Every transaction in the chain cannot be altered, deleted or destroyed.
Enter the ATO data-matching program…
The ATO data-matching program has been in place since April 2019 and has collected data on cryptocurrency transactions for the financial years between 2015 and 2021, with no end in sight. Yes, you read that right, as early as 2015! A key driver for the focus on data-matching is due to the increased popularity in the trade of cryptocurrencies. Data-matching allows the ATO to identify and address the multiple taxation risks associated with cryptocurrency such as:
- Capital Gain Tax (CGT) – A CGT event occurs when you dispose of your cryptocurrency. This includes selling or gifting, trading or exchanging, converting to a fiat currency e.g., Australian Dollars and even the use of cryptocurrency to obtain good or services.
- Omitted or incorrect reporting of income – Taxpayers who trade cryptocurrency or businesses that accept cryptocurrency as payment have obligations to report the income in their tax returns.
- Fringe Benefits Tax (FBT) – If an employee receives cryptocurrency as remuneration under a salary sacrifice arrangement, the payment of the cryptocurrency is a fringe benefit.
But how can the ATO be sure it was you who traded the cryptocurrency? The ATO uses over 60 identity matching techniques to ensure the correct taxpayer is identified when they obtain the data from third parties, along with additional manual processing, which involves an ATO officer reviewing and comparing the data.
What’s the moral of this story… Keep accurate records in relation to the purchase, trade or sale of your cryptocurrency and ensure you report it in your tax return. The ATO will find out!
By Emma Russoniello