Cryptocurrency and Taxation
Bitcoin has had a stellar year rising from around $13,000 in July 2020 to a high of around $84,500 in mid-April and as I write this it is trading at around $48,000.
Some of you may have taken the opportunity to sell some of your Bitcoin and if you chose to do this at the top of the market you would be feeling pretty happy with yourself.
But beware, because that large price increase has brought cryptocurrency into focus for the ATO and they have recently flagged that they will be taking steps to begin the process of data matching for the period 1 July 2014 to 30 June 2020. They are busy contacting the cryptocurrency designated service providers (DSP’s) to obtain data relating to transactions over this period.
Once they receive this data, they will match this data against ATO records to identify individuals who may not be meeting their reporting obligations. In other words, they will be comparing what you have put on your tax return against the data they receive from the DSP’s. If there is a discrepancy, particularly if it is significant, then you can probably expect a knock on the door with a “please explain”. Last year the ATO directly contacted 100,000 taxpayers who had traded in cryptocurrency and prompted another 140,000 taxpayers at lodgement.
This year the ATO will be writing to 100,000 taxpayers they know have cryptocurrency assets, explaining their tax obligations and urging them to review their previous returns. They expect almost 300,000 taxpayers this year to report cryptocurrency capital gains or losses.
If you have purchased Bitcoin, but never sold it you don’t need to worry, but in the event you do sell some or all of it in the future you will need to have proof of what you paid for it. However, if you have sold it in the past you may want to have a chat to your Accountant.
Data matching is becoming more sophisticated and the ATO has made it clear that they will be utilising this technology wherever they can to ensure everyone is meeting their tax obligations.