The craze for cryptocurrency is “exploding” but too often it is being overlooked or wrongly labelled at tax time, said the director of tax communication at H&R Block.
Mark Chapman said the first mistake involved ignoring digital currency altogether.
“Many clients simply don’t realise that what they’re doing here is taxable at all,” he said. “They don’t mention it when they see their accountants.”
“Then their accountants don’t ask about whether they’ve bought and sold any crypto-currencies, so it never comes up.
“Therefore it doesn’t feature in the tax return at all because neither party thought it was worth a mention.”
Figures from the ATO showed trades in cryptocurrency leapt 64 per cent in 2021, with more than half a million Aussies buying, selling or exchanging digital coins.
Speaking at a recent Accountants Daily Strategy Day, acting ATO assistant commissioner Sylvia Gallagher said: “If you’re not already paying attention then you really should be.”
Mr Chapman agreed.
“The number of people trading in crypto is exploding,” he said, with H&R Block seeing more every year.
“The tax consequences can be quite dramatic because crypto-currencies tend to vary quite dramatically in value over time. So you can make very large losses or very large profits in quite a short period.”
For a young person dabbling in crypto, the consequences might dwarf their other tax issues.
Mr Chapman said a second crypto pitfall was whether the activity incurred CGT or income tax.
“It’s a grey area – it could go either way. If the crypto-currency buyer and seller is simply an investor, then it’s going to be treated as a capital gain,” Mr Chapman said
“But if the individual is actually trading in crypto-currencies then it’s treated as income tax.”
The accountant had to work out which applied, and “that can be quite difficult, particularly if a client comes at you waving lots of statements with lots of buys and sells, you’ve got to sit there and make that judgment call.”
Ms Gallagher said the ATO has been using data matching on crypto since 2019 and had transaction records going back to 2014.
“We’re keeping a really close eye on it,” Ms Gallagher said.
“We have a lot of information and we do use this data to ensure that people are meeting their tax obligations and there’s a level playing field.”
Mr Chapman said it was vital that accountants made themselves familiar with digital currency via webinars and other online learning tools.
“The basic tax principles aren’t that difficult – CGT versus income tax is something that people who deal with shares have been dealing with for years,” Ms Gallagher said.
“Keeping records is vitally important. It’s too late when you get to tax time.
“You’ve got to get your head around it.”
Philip King is editor of Accountants Daily and SMSF Adviser, the leading sources of news, insight, and educational content for professionals in the accounting and SMSF sectors.
Philip joined the titles in March 2022 and brings extensive experience from a variety of roles at The Australian national broadsheet daily, most recently as motoring editor. His background also takes in spells on diverse consumer and trade magazines.