In 2019 the ATO started its first crypto data-matching program.
The ATO’s data matching program compared taxpayer self reported income to cryptocurrency transaction data occurring between 2014 and 2019.
Recently, the ATO expanded their program to gather information up to the 2022-2023 income year and will continue to gather and compare data into the future under subsequent programs.
The ATO’s program collects the following information:
· Client identification details (names, addresses, date of birth, phone numbers, social media accounts and email address); and
· Transaction details (bank account details, wallet addresses, transaction dates and times, transaction types and deposits.)
The ATO sources its data from designated service providers, (‘DSPs’) or designated entities under Anti Money Laundering/Counterterrorism legislation and related Know your Customer requirements. It may also obtain data from other sources.
Designated entities include centralised crypto exchanges, exchanges that convert fiat currency to crypto currency (or vice versa) or other regulated bodies. A DSP may notify account holders of the sharing of their information with the ATO.
What are the ATO doing with this information?
As most crypto investors will now be familiar, the ATO has been reminding identified taxpayers of their record keeping and taxation obligations by sending out polite letters.
We think these reminders are an excellent opportunity for individuals to get up to date in their crypto related tax affairs – getting in early might improve your chances of catching the ATO in a good mood!
Where the ATO remains unsatisfied with the accuracy of a Taxpayer’s reported income, it may conduct further compliance action or an Audit into a taxpayer’s affairs and possibly amend a tax return.
What records am I required to keep?
Each time you transact in crypto, the ATO requires you to record:
- The date
- The value of the cryptocurrency in Australian dollars at the time of the transaction
- What the transaction was for
- Who the other party was (a cryptocurrency address is sufficient)
Remember, you are required to keep these records for at least five years after lodging the relevant return or form.
See General Record Keeping Information and Cryptocurrency Record Keeping Information.
The ATO can’t see everything crypto…
Decentralised exchanges and decentralised physical wallets may not fall within the umbrella of the ATO’s data collection regime, owing to technical difficulties in identifying and collecting sufficient information from these types of transactions.
Don’t use this as an excuse to get lazy!
Good record keeping and staying on top of your crypto tax affairs is your best option because…
1. Data lives forever
Data (think Crypto ledgers and the blockchain) is very long lived. The ATO may be in a position many years into the future to determine that you didn’t meet your taxation obligations, assess you accordingly, and then charge interest retrospectively – Ouch!
2. Anonymity isn’t guaranteed
The ATO’s power to gather information is extensive. Law enforcement and government have previously demonstrated an ability to piece together ownership of anonymously held crypto assets when they have invested resources to investigate. #SilkRoad
3. A lifetime liability
The ATO is permitted by law to amend a taxpayer’s tax return for an unlimited period where it considers that fraud or evasion has occurred – deliberate non-reporting of gains made from disposals of Crypto will meet this description.
The ATO can and will levy administrative penalties and interest on amounts assessed which can lead to tax liabilities double or greater than the original primary tax owed – bankruptcy anyone?
What to do if you’ve fallen behind?
If you have any questions about your Crypto tax affairs – Get in touch with us.
Otherwise… Keep appropriate records, ensure your tax returns are accurate and most importantly, make it rain!
An adaptation of this article was published in the Thomson Reuters Weekly Tax Bulletin on 11 February 2022.