Is your brother-in-law, who likes to brag about his Bitcoin earnings, still one of the potential 300,000 Aussies who haven’t declared their cryptocurrencies to the ATO?
If so, it could potentially contribute a staggering $1.5 billion in unreported cryptocurrency income to the Australian Taxation Office.
What’s even more frightening is this: a simple calculation using reliable data suggests that $1.5 billion is on the very conservative end of what this amount could actually be.
Crypto tax software company Koinly has shared some recent survey results of the estimated 1.5 million Australians involved in crypto, with potentially 200,000-300,000 still to report their crypto to the ATO.
Australia-based cryptocurrency exchange Swyftx revealed in its latest report that 72 percent of Australians who invested in cryptocurrency made an average profit of $11,013 on their investments last year.
Even if we use the lower end of these statistics, 72 percent of 200,000 people is 144,000 people, the number of people we can assume earned an average income of $11,013.
Let’s take those 144,000 people, and let’s be conservative assuming they don’t earn more than $11,013 on average, which equates to more than $1.5 billion in crypto profits still not reported to the tax office.
Given that many Australians earn more than the average amount of $11,013, the total amount not reported to the ATO could be significantly higher.
Why is it important to declare your cryptocurrency?
You’re probably wondering, why does it matter if I declare my cryptocurrency?
Simple answer: the ATO already knows you own cryptocurrency.
A spokesman for the tax office said that despite the “anonymous” nature of cryptocurrency, the ATO can trace money returned to taxpayers through data from banks, financial institutions and online exchanges of cryptocurrency assets.
Koinly Australia head of tax Danny Talwar described the ATO’s data matching program as “comprehensive”, finding “anomalies” reported in tax returns when compared with data from different agencies.
If the ATO is after more information, it can even make inquiries directly with the relevant cryptocurrency exchange.
Leigh Travers, CEO of cryptocurrency exchange Binance Australia, announced that Binance complies with all regulatory requirements from law enforcement and regulatory agencies under “relevant legislation”.
While the ATO understands those who make genuine errors that allow them to ‘amend’ a tax return, those who deliberately fail to report or choose to ‘take no action’ after identifying errors or omissions may be subject to scrutiny.
When is your cryptocurrency taxable?
The biggest myth is that cryptocurrency investors only have to pay tax when they convert their crypto into Aussie dollars.
The truth is that you are required to report all crypto you dispose of during the financial year, regardless of whether you converted it to cash or made a profit or loss. These deletion events include exchanging one cryptocurrency for another, using crypto to purchase goods and services, and even gifting cryptocurrency.
Mr. Talwar added that it is important for an individual to consider whether they have made a gain or loss on the disposal of a crypto asset, as their cryptocurrency is taxed at the applicable personal marginal income tax rate.
However, cryptocurrency is not limited to capital gains tax – it can also be subject to ordinary income in some cases.
If you bet your cryptocurrency and earn interest or rewards as a result, this is ordinary income and you must add that amount to your taxable income.
Mr. Talwar said cryptocurrency is taxed like ordinary income, such as income from income-generating activities or any interest, rather than foreign exchange.
The reality is that if you hold crypto on a crypto exchange, not only will the ATO already know about it, your accountant will usually know too. When you go to complete your tax return, when you pre-fill it, it will appear that they recommend that you hold cryptocurrency and contact their customers.
Mr Travers believes Australians have a “responsibility” to file a true and accurate tax return and suggests crypto traders who are unaware of their tax obligations should amend their tax returns to accurately reflect this.
There are plenty of crypto tax apps that can help simplify this process for you without giving up on entering your entire weekend of data into a spreadsheet.
So the next time your brother-in-law says he made 100x on his latest bitcoin investment, ask him if he reported it to the ATO, tell him to download the crypto tax calculator and send him the link to this article.
Ciaran Lyons is an accountant and avid crypto investor with a background as a national radio presenter. He regularly contributes to global cryptocurrency publications and was one of five Australians in the most recent SBS series Filthy Rich and Homeless.