The ATO has upheld its good-faith approach to the accounting of cryptocurrencies, however it isn’t likely to last much longer.
For those involved in cryptocurrencies, now is the time to really pay attention to the current taxation rules before the ATO tightens enforcement of undeclared crypto assets.
The ATO has, within the last year or so, begun to compile data from cryptocurrency exchanges, the actual providers. As a result of that, the ATO now has a much better understanding of who’s involved in this space.
While the ATO has been expected to tighten auditing around cryptocurrencies for the past three years, and hasn’t, its leniency isn’t expected to last much longer. The ATO began to show signs of ramping up on compliance in March 2020, when an undisclosed number of notices were sent to taxpayers, alerting them to declare their accurate capital gains or losses.
Many individuals have received these notices from the ATO, indicating that there is a mismatch in their data. This has in-turn prompted a lot of people to visit their tax agent, or even to see a tax agent for the first time if they’ve been doing it themselves.
It’s unclear whether the ATO’s light-touch approach will necessarily last forever. As the data comes in and as the ATO has an improved awareness of how many people are in this market, it is likely that they will start to take a firmer approach.
Getting a grip on the crypto scene
As cryptocurrencies become increasingly fixed in the mainstream, one of the main challenges in accounting for them has been that some stakeholders may not know that they need to declare crypto assets to their accountants.
Many advisors need to research the guidelines themselves in relation to this as well. Advisors need to ensure that when they are communicating with their clients, they’re asking the question, ‘Have you purchased, sold, or invested in cryptocurrencies over the course of the past year?’
Although, after advising their clients to declare their crypto assets, practitioners should see this time as a warning and familiarise themselves with how cryptocurrencies really operate, before the ATO commence with compliance action.
Advisors just need to understand where cryptocurrencies fit in with the complete picture of their client’s investments. The basic tax rules are essentially the same as they are for other forms of investments. They also need to understand how to deal with cryptocurrency transactions, and compare that to the way other types of transactions are treated, to really get a handle on the kind of records that individuals have in relation to cryptocurrencies.
Our team at Cryptotax are highly skilled and up to date with all current tax regulations. Should you require assistance or are concerned about the enforcement of undeclared crypto assets, please contact us as soon as possible and we will be happy to review the situation for you and assist with the management of your cryptocurrency taxation matters.