Is that brother-in-law of yours who likes to brag about the amount of money he’s made from bitcoin one of the potential 300,000 Aussies who have yet to declare their cryptocurrency to the ATO?
If so, he may be contributing to a staggering amount of potentially more than $1.5 billion in unreported crypto profits to the Australian Taxation Office.
What’s even more alarming is that $1.5 billion is on the very conservative end of what that amount could actually be, by a simple calculation using reliable data.
Crypto tax software company Koinly shared some recent survey results that of the roughly 1.5 million Australians involved with crypto, there may be 200,000 to 300,000 yet to report their cryptos to the ATO.
Australia-based cryptocurrency exchange Swyftx revealed in its latest report that 72 percent of Australians investing in crypto made an average profit of $11,013 on their investment last year.
Even using the low end of this statistic, 72 percent of 200,000 people is 144,000 people, the number of people we can assume made an average profit of $11,013.
Let’s take those 144,000 people and conservatively assume they didn’t make more than the average amount of $11,013, which still equates to over $1.5 billion in crypto profit that isn’t reported to the IRS is reported.
Considering that many Aussies have achieved returns in excess of the average figure of $11,013, the total unreported to the ATO could be significantly higher.
Why is it important to report your cryptocurrency?
You’re probably wondering why it matters whether I report my cryptocurrency or not?
The simple answer: The ATO already knows their own crypto.
A spokesman for the tax office said that although crypto appears “anonymous”, the ATO can trace money trails back to taxpayers through data from banks, financial institutions and online exchanges for crypto assets.
Koinly Australia’s head of tax, Danny Talwar, described the ATO data matching program as “comprehensive” which finds “exceptions” reported on tax returns compared to data from various institutions.
If the ATO needs more information, they can even make a request directly to the relevant cryptocurrency exchange.
Leigh Travers, CEO of cryptocurrency exchange Binance Australia, announced that Binance is in compliance with all regulatory requirements issued by law enforcement and regulatory agencies under “Applicable Legislation”.
While the ATO understands those who make real mistakes that allow them to “amend” their tax returns, those who intentionally do not report or choose not to act after noticing errors or omissions can be subjected to an examination.
When is your crypto taxable?
The biggest myth is that crypto investors only have to pay taxes if they convert their crypto into Aussie dollars.
The truth is, you are required to report all cryptos you have disposed of during the financial year, whether you converted them to cash or made a profit or a loss. These disposal events include exchanging one crypto asset for another, using crypto to purchase goods and services, and even giving crypto away.
Mr Talwar added that it is important for an individual to consider whether they made a profit or loss on the disposal of their crypto assets as their crypto will be taxed at the prevailing individual marginal income tax rate.
However, crypto is not just limited to capital gains tax — it may also be subject to ordinary income in some cases.
If you use your crypto and receive interest or rewards as a result, that is ordinary income and you must add that amount to your taxable income.
Mr Talwar said that crypto is taxed as ordinary income when it is received and not when it is disposed of, e.g.
take that away
The reality is, if you hold crypto on a cryptocurrency exchange, not only does the ATO already know about it, but your accountant generally does too. When they fill out your tax return, your pre-fill will show that you hold cryptocurrency and advise them to check with their client.
Mr. Travers believes Australians have a “responsibility” to file a true and accurate tax return and suggests that crypto traders who have been unaware of their tax obligations should amend their tax returns to accurately reflect this.
There is a wide range of crypto tax software that can help simplify this process for you without wasting your entire weekend entering data into a spreadsheet.
So next time your brother-in-law talks about his 100x gains on his latest bitcoin investment, ask him if he reported it to ATO, tell him to download a crypto tax calculator, and send him the link this article.
Ciaran Lyons is an accountant and avid crypto investor with a background as a national radio host. He is a regular contributor to global cryptocurrency publications and was one of the five Australians on the latest SBS series Filthy Rich and Homeless.
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