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In an era where cryptocurrency is rapidly transitioning from a digital curiosity to a staple in the portfolios of many Australians, understanding the tax implications of crypto transactions is more crucial than ever.
The Australian Taxation Office (ATO) has recently updated its non-binding web guidance on how more nuanced cryptocurrency transactions or activities are dealt with under Australian taxation law, ruffling the feathers of many crypto users across Australia.
Whether you’re a seasoned crypto investor or just dipping your toes into the world of digital currencies, understanding the implications of these tax changes is vital.
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Unpacking the ATO’s Latest Changes to Crypto Taxation
The ATO has introduced significant updates to its guidance on cryptocurrency taxation, which represents a departure from its usual approach of issuing binding public rulings on controversial or complex taxation issues.
Tax lawyer, founder of Cadena Legal and former ATO auditor and internal tax counsel, Harrison Dell, criticises this method, noting: “This is the first time I have seen the ATO try and publish complex legal opinions on the website and not in a public ruling.”
He points out that the ATO’s website typically serves to convey how the tax system works in broad terms, but in this case, it presents complex views without a solid legal basis. Dell expresses concern over the ATO’s choice of providing non-binding website guidance without adequate legal backing, leaving tax professionals and crypto users grappling for clarity.
Decentralised Finance (DeFi) Tax Updates
One of the most significant and controversial updates the ATO has released relates to transactions involving decentralised finance (DeFi) platforms. These platforms allow crypto users to participate in a wide range of peer-to-peer financial activities, such as lending, borrowing, and even earning interest on their crypto. The essence of DeFi platforms is that there is no middleman; everything is executed by smart contracts, allowing for secure, trustless interactions with others, even with large sums of money involved.
In the most recent update, the ATO has stated that most DeFi transactions, including token swapping, wrapping and lending crypto will trigger CGT events.
“This is the big one,” Dell says. “The ATO has come out and said, ‘Any time you swap a token for another, it is a trigger for tax’.”
Dell notes the challenges this poses, pointing out the lack of detailed guidance from the ATO and the consequent need for taxpayers to seek expensive professional advice. Dell also adds that few tax and accounting professionals have the expertise to audit smart contracts and provide accurate advice, a gap that the ATO itself is unlikely to fill.
Spending with Crypto Cards
The ATO has also clarified the tax implications of using cryptocurrencies for purchasing gift cards or topping up debit cards.
“The ATO’s position (on this) is not surprising; selling or transferring crypto to obtain a gift card is pretty clearly a disposal event,” Dell says. This aligns with the broader understanding that such transactions are treated like selling crypto for cash, with capital gains tax (CGT) implications.
The Tax Implications of Crypto Gambling
The ATO has also updated its guidance on the tax treatment of crypto gambling winnings. Dell explains: “The ATO really just clarified that crypto gambling does have some taxable elements, like disposing to make a bet, but the winnings are still usually tax exempt—just like most gambling in Australia.” This clarification indicates that while the act of betting with crypto is taxable, the winnings themselves largely remain exempt.
Personal Use Crypto Assets
In the recent update, the ATO also elaborated on the distinction between crypto assets held for personal use and investment.
Dell criticises the ATO’s guidance in this area, stating it contains “lots of rambling thoughts”. He argues that the main question should be the primary reason for holding the crypto or NFT and believes the ATO’s guidance in this area goes beyond being instructive and instead actively discourages valid claims for the personal use exemption.
What The ATO’s Crypto Tax Changes Mean for You
In response to the ATO’s recent changes to cryptocurrency tax guidance, there is a clear need for vigilance among crypto users in Australia. While these changes do not redefine crypto transactions, they do introduce specific requirements and considerations that must be integrated into the routine management of digital assets.
Practical Considerations for Crypto Users
- Understanding taxable events: It’s crucial for crypto users to recognise which activities could constitute taxable events under the new guidelines. This understanding helps in anticipating tax obligations and in making informed decisions about future transactions.
- Emphasis on record-keeping: The importance of maintaining detailed records of all cryptocurrency transactions cannot be overstated. This includes dates, amounts, transaction types, and the purpose of each transaction. Accurate record-keeping is essential for determining tax liabilities and for supporting your tax filings.
- Using crypto tax software: For those engaged in complex or numerous transactions, using crypto tax calculation software that is compliant with the ATO’s guidelines can be immensely helpful. These tools can assist in tracking transactions, calculating gains or losses, and preparing reports that align with the ATO’s requirements.
- Seeking professional advice: Given the nuances and complexities of these new guidelines, consulting with tax professionals with cryptocurrency expertise is highly advisable. This is particularly important when determining the tax treatment of complex transactions or when you need to establish a credible argument for your tax positions.
- Be prepared for audits: With the ATO sharpening its focus on cryptocurrency, compliance with these new guidelines is essential. Users should be prepared for the possibility of audits or inquiries and ensure their activities and records align with the ATO’s requirements.
The ATO’s updated crypto tax guidelines necessitate a proactive and informed approach from crypto users. By focusing on thorough record-keeping, leveraging technology for transaction management, seeking expert advice, and understanding the tax implications of their activities, crypto users can navigate these changes effectively and ensure compliance with the evolving tax landscape in Australia.
What Happens if You Ignore the ATO’s Updates?
Ignoring the Australian Taxation Office’s (ATO) updates on cryptocurrency taxation can have significant implications, and understanding these alongside alternate viewpoints is crucial for crypto users in Australia.
Dell notes that the information on the ATO website, while indicative of the ATO’s position, does not hold legally binding power for both the ATO and everyday crypto users.
“The ATO may think otherwise, but the ATO website is really just the (ATO) Commissioner’s blog, and isn’t a legal source,” he tells Forbes Advisor.
“It really makes you question: why didn’t the ATO make a formal ruling instead?” This, he suggests, would have provided a more solid foundation for understanding and applying the tax laws related to cryptocurrencies.
However, Dell cautions against disregarding the ATO’s stance without careful consideration.
“People should be careful to reject the ATO’s website guidance and should only do so after getting professional advice,” he advises, especially given the potential for harsh ATO penalties.
Dell also points out that you might be protected from penalties if you have a “reasonably arguable position”, although he notes the ATO’s hawkish stance towards crypto users more broadly and stresses the importance of consulting with tax professionals to ensure one’s position is reasonably arguable.
Dell’s law firm Cadena Legal is seeking to initiate court cases to clarify these tax laws to help crypto users across Australia finally gain some legally binding clarity.
Featured Partners
Crypto assets are unregulated & highly speculative. No consumer protection. Capital at risk.
Frequently Asked Questions (FAQs)
How is crypto taxed in Australia?
In Australia, cryptocurrencies are treated as capital assets and are taxed based on how they are used and held. If you hold crypto as an investment, any profit from selling or trading it is subject to capital gains tax (CGT). This means you need to calculate the difference between what it costs you to acquire the crypto and what you received when you disposed of it. Receiving cryptocurrency as payment for goods or services is treated as income and taxed accordingly. It’s important to keep detailed records of all your transactions to report any gains or income accurately.
How do I declare crypto to ATO?
To declare your crypto to the Australian Taxation Office (ATO), you need to calculate the capital gains and income from all your crypto-related transactions and then include these figures in your annual tax return. You can report capital gains or losses in the capital gains section of your tax return, while income received from crypto should be included as part of your ordinary income. Maintaining comprehensive records of your transactions, including dates, values, and the nature of each transaction is advisable.
Can the ATO track your crypto?
Yes, the ATO can and does track your cryptocurrency transactions. The ATO has access to data from cryptocurrency exchanges and other digital currency platforms to identify the buyers and sellers of crypto. They use this data to ensure compliance with Australian tax laws. The blockchain’s transparent nature also makes it easier for the ATO to track transfers from exchanges to individual wallets. Therefore, being transparent and compliant with your crypto transactions for tax purposes is essential.
How much tax will I pay on crypto?
The amount of tax you pay on cryptocurrency in Australia depends on several factors, including how long you’ve held the crypto and what tax bracket you fall into. For capital gains, if you’ve held the cryptocurrency for more than 12 months, you might be eligible for a 50% CGT discount.
Crypto income is added to your other income and taxed at your marginal tax rate. The exact amount varies based on your total income and the specific details of your crypto transactions. Using crypto tax software or even consulting a tax professional specialising in crypto is a good idea for a precise calculation based on your circumstances.