ATO likely on alert for cryptocurrency claims during tax time By Michael Croker Updated March 06, 2018 07:27:31 Map: Australia
Depending on who’s talking, cryptocurrencies are either the next big thing or the currency of the underworld. But an increasing number of chartered accountants say their clients are interested in the tax ramifications of investing in this latest barbecue stopper.
Assistant Treasurer Michael Sukkar has said he’s been informally working with people in Treasury and the ATO to characterise and potentially tax and treat cryptocurrencies.
While some jurisdictions have taken a relatively dim view of cryptocurrency, as Mr Sukkar noted, others are working hard to strike the right balance between fostering blockchain technology which underpins cryptocurrencies, and safeguarding consumers, businesses and regulators.
Take, for instance, the UK’s Digital Currency Inquiry announced recently . The terms of reference cover many topics that reflect both sides.
This is a clear reminder that cryptocurrencies have many backers in the fintech space.
But I’ve yet to meet a tax official enamoured with the idea that deregulating and embracing new technology to streamline government should spawn new types of untaxed endeavour.
Nonetheless, when it comes to tax and community confidence in the systems they administer, ATO commissioners know they must stay ahead of the curve, and their focus is simple:
Come tax time, will those who’ve made cryptocurrency profits come forward and pay their tax? Claim the gain or the loss?
Tax regulators fear a hit to tax revenue from crypto-players claiming tax losses. This bitcoin USD chart suggests there may be plenty in this category.
Currently there are no bespoke Australian tax rules other than the 2017 legislation to remove double-taxation for GST purposes . This means some long-established tax principles must be pressed into service again.
And for income tax purposes, let’s not forget the all-important capital versus revenue distinction and relevance of trading stock tax accounting. Bitcoin is a formula almost guaranteed to end in tears, but still speculators pile in to the bubble, writes Ian Verrender.
Chartered accountants know that savvy clients who profit from speculative activity sometimes demand concessionally taxed capital gain treatment on the way up, and plead for tax deductible revenue loss relief on the way down.
When I taught tax I called them flip-floppers.
The ATO has not been silent on these issues. It has published guidance, such as the tax treatment of crypto-currencies in Australia — specifically bitcoin; GST and digital currency ; and the Draft Legislative Instrument DCC 2018/D1 Goods and Services Tax: Digital Currency Conversion Determination 2018: DCC 2018/D1 .
Deputy ATO Commissioner James O’Halloran has urged SMSF trustees to exercise caution when thinking about crypto-investing — a good starting point to understand the risks was published by the European Central Bank while other industry bodies have also been active, such as Australian Crypto .
While existing tax frameworks may cope, Mr Sukkar’s reported statements suggest cryptocurrency is currently a fairly large blip on Canberra’s risk radar right now.
Although he described the Australian officials’ work as “embryonic”, there are a few things that might benefit from further exploration.
Cryptocurrency players’ register needed
For starters, cryptocurrency might be badged as a new, inherently speculative asset class for tax purposes, and accordingly given special income tax treatment, including limited access to tax concessions that might otherwise be available.
At the very least, a “lock it in, Eddie” decision should be required by taxpayers upfront to determine whether revenue or capital treatment applies. The various scenarios of when a cryptocurrency tax realisation event occurs could be further clarified.
Another idea is that crypto-exchanges with clients in Australia have to register here, with all the attendant reporting obligations.
The relevant taxpayers should register as cryptocurrency players and make specific tax disclosures on their tax returns. The boss of JPMorgan Chase said if his staff were caught trading bitcoin he would “fire them in a second” and it’s a “fraud”. So, is it?
Any cryptocurrency losses should be quarantined so they only offset gains of the same type, and crypto-related deductions claimed in other jurisdictions could be denied.
When it comes to oversight, the Forum for Tax Administration (and the related Joint International Taskforce on Shared Information and Collection group ) could be enlisted to monitor the cryptocurrency landscape, while AUSTRAC could improve cross-border currency transfer monitoring.
It’s likely Treasurer Scott Morrison will be briefed by his cryptocurrency think-tank before he heads off to Argentina for the next G20 gathering now that France and Germany have put cryptocurrency regulation on the agenda .
For Tax Time 2018, the ATO will likely be in outreach mode, telling taxpayers that cryptocurrency activity has tax consequences, and warning of big penalties for non-disclosure.
At least initially, those engaged in crypto activities will attract a high ATO risk rating and direct follow-up contact is likely.
Those preparing tax returns be warned!
Michael Croker is t ax leader at Chartered Accountants and Australia and New Zealand. First posted March 06, 2018 06:04:01 Cryptocurrencies.
