The last post looked at some of the myths surrounding crypto aka no-one needs to know and that it’s like gambling, hence the ATO especially doesn’t need to know (hint: neither are true). Today we thought we’d look at what you might expect from the ATO when it comes to crypto and how to best prepare.
It’s now a known fact that the ATO is actively looking to recoup some of the income losses they’ve sustained during the course of the Pandemic. And given the level of data they now have access to via banking, money transfer apps like PayPal and Stripe, sharing economy apps like Uber and Airbnb, and social media/eCommerce platforms like Shopify, Facebook, Instagram, etc., they know where every cent of your extra income is coming from. So it’s never been more important for you to be on top of what you’re reporting in your tax return each year.
Nowhere is this more important, and still often more difficult than it should be, is reporting on your cryptocurrency transactions.
The ATO is telling accountants that the crypto reporting situation is “evolving”, which means you just know the rules around it are going to get tighter and tighter. They’re also telling us they’re waiting on getting ‘better reporting’ from crypto wallet providers. And once they do that, people holding, trading or spending crypto need to prepare for a reckoning of sorts. As we explained in the last blog, all activities surrounding crypto must now be treated exactly the same as any other investment asset class. The ATO is less interested in you buying it (unless they can’t see how you’ve been able to afford that and that could very easily trigger an audit). Rather the ATO is very interested in when you either spend it, trade it, gift it or sell it. All of those activities will trigger a taxation event, generally, a capital gain especially if you purchased your crypto a while back. And there are a lot of people who bought back in early 2011 when Bitcoin (the original crypto) was worth US$1 rather than it’s now nearly US$50K per token.
Even if you’ve held onto your crypto and done nothing with it so far, maybe you’d forgotten about it or you’d bought US$100 of tokens back in July 2010 when it would have bought you 125,000 tokens to save for retirement (yep, today that would be worth nearly US$750M – hindsight is a wonderful thing) – it’s likely that you will at some point.
So best be prepared that as reporting gets better, if you’re suddenly reporting a gain of $5K this or next year, but you’ve not reported anything previously, the ATO is likely to start asking questions about your previous crypto history. And, let’s face it, the ATO always gets paid.
Where it gets more painful is that if you’ve not reported previously, even though you should have or you purposely downgraded what you reported, it’s not just fines, but penalties as well. For example, if you’ve shown complete disregard for the ATO and your legislated taxation responsibilities, you could be opening yourself up to a 75% penalty ON TOP of the adjustment for tax. So let’s say you owed $100K in tax that would mean an additional $75K on top of the $100K. Ouch!
The how-to of reporting your crypto appropriately
Crypto wallets are notoriously lacklustre in terms of their reporting. Sure, they tell you what you did and when, but they often don’t record the real financial details of the transactions. So what we’re recommending to our clients at the moment is that they look at some really useful software as far as going back historically, that allows you to upload all the information from your electronic wallet and it then provides the reports you need for your accountant to deal with easily – some examples are cryptio.co, softledger.com, etc.*. Think of these like Xero for your crypto transactions. Just make sure whichever one you choose has the option for historic calculations in terms of value.
But if all you’ve got is your crypto wallet with no information on purchase price, trades, values of trades, then your accountant has to go line by line, calculating as they go and it’s a looooong process. And it would make for a very ridiculously expensive, painful audit trail if you ever got audited (and let’s just say, it’s probably more of a when, not an if, if you hold crypto). So, if that’s you at the moment, it might be very prudent to look at getting yourself some audit insurance.
What if I have cryptocurrency as part of my SMSF?
The lack of quality reporting is one of the key reasons why the ATO is really starting to push back on crypto held and traded within SMSFs. They really don’t like it, auditors don’t like it and accountants don’t like it.
Another issue is that you’ve got to be able to prove SMSF ownership – aka that the SMSF entity owns the assets and that it’s not owned by individuals or trustees. Given that most wallets have been traditionally owned under individuals’ names, that could be very problematic – especially if the funds put into purchasing the crypto have been taxed at superannuation rates. It could be pretty messy. If that’s you, you might want to really start considering if your crypto adequately falls into what’s required for your SMSF investment portfolio.
And that’s where we can help. If you, personally, or your SMSF hold any kind or multiple kinds of cryptocurrency and you want to get your reporting both now and into the future better sorted, we’d love to chat. You can contact us on 02 6023 1700 or drop us a note via the form below.
*These are just examples and this is not a recommendation on which product is right for you.