More than 600,000 Aussies have invested in cryptocurrency recently, according to the ATO, which is concerned about people are trying to dodge declaring their assets.
It wants to smash the myth that many taxpayers believe that their cryptocurrency gains are tax free or only taxable when the holdings are cashed back into Australian dollars.
Trading in cryptos like bitcoin, dogecoin and ethereum has surged in popularity in recent years.
RELATED: Bitcoin crashes on harsh China crackdown
RELATED: ‘Extreme fear’: Cryptocurrency’s uncertain future
ATO’s assistant commissioner Tim Loh said a big myth is that people think crypto is a currency, rather than an asset, which is how it is classified by the ATO.
This year the ATO will be writing to around 100,000 taxpayers with cryptocurrency assets urging them to review their previously lodged returns.
It will also be prompting almost 300,000 people as they lodge their 2021 tax return to report their cryptocurrency capital gains or losses.
Mr Loh said he was “alarmed” that people may think cryptocurrency operates in an anonymous digital world and that provides them with a licence to ignore their tax obligations.
RELATED: Top-performing cryptocurrencies for Australian investors
RELATED: China cracks down on bitcoin to make its own cryptocurrency
RELATED: Elon Musk pumps dogecoin with ‘CEO’ tweet
But the ATO closely tracks where cryptocurrency interacts with the real world through data from banks, financial institutions and cryptocurrency exchanges, he revealed.
“(We) follow the money trail back to the taxpayer and we do that through the ATO which has data matching profiles with cryptocurrency exchanges and they provide that information to us and we use that information to cross match with people’s tax returns,” he told news.com.au.
“There isn’t a game of hide and seek. We have got that information and all we are asking people to do is follow the rules. We know most Australians follow the rules.”
Mr Loh explained that gains from cryptocurrency are similar to gains from other investments, such as shares.
Generally, as an investor, if you buy, sell, swap for fiat currency, or exchange one cryptocurrency for another, it will be subject to capital gains tax (CGT) and must be reported.
CGT also applies to the disposal of non-fungible tokens.
Last year, the ATO contacted around 100,000 taxpayers who had traded in cryptocurrency and prompted 140,000 taxpayers at lodgement.
Mr Loh said he wasn’t surprised by the huge increase in Aussies who had invested in cryptocurrency considering how prices have skyrocketed in the past 12 months.
Holding a cryptocurrency for at least 12 months as an investment may mean you are entitled to a CGT discount if you have made a capital gain. In limited circumstances cryptocurrency may be a personal use asset, according to the ATO.
RELATED: Aussie man’s $1000 a week crypto experiment
Mr Loh said the ATO knows cryptocurrencies can be complicated and are focusing on helping people get it right.
“The best tip to nail your cryptocurrency gains and losses is to keep accurate records including dates of transactions, the value in Australian dollars at the time of the transactions, what the transactions were for, and who the other party was, even if it’s just their wallet address,” he explained.
If you realise you’ve made a mistake and correct your return, the ATO will significantly reduce penalties, added Mr Loh.
“However, failing to report on crypto-assets and not taking action when reminded will prompt penalties and potentially an audit,” he said.
Businesses or sole traders that are paid cryptocurrency for goods or services, will have these
payments taxed as income based on the value of the cryptocurrency in Australian dollars, according to the ATO.
A cryptocurrency factsheet has been created by the ATO with tips and information on how capital gains tax applies to cryptocurrency.
This news is republished from another source. You can check the original article here