The tax office has cryptocurrencies in its sights
“As cryptocurrencies grow as an asset class into the future, it is important that crypto investors know their obligations at tax time,” says Danny Talwar ACA (ICAEW), head of tax at Koinly.
- An early 2022 survey by Roy Morgan found that over one million Australians own at least one type of cryptocurrency, redefining crypto’s place within investment portfolios.
- The ATO has recently stressed the importance of keeping proper records of all crypto transactions for tax time.
- Having a crypto-savvy population in Australia will mean a rise in demand for accountants who understand crypto and can specialise in it to a certain extent.
Accountants hit the ground running on 1 July, with the end of the financial year leading to the inevitable wave of tax returns being prepared for lodgement. The Australian Tax Office (ATO) has urged Australians to hold off on their lodgements until they know all pre-fill information has been captured.
The 2021–2022 financial year saw the ASX 200 index experience a 10.2% fall (its third annual loss over the past decade), while residential dwellings nationally rose 23.7%. Meanwhile, cryptocurrency markets nosedived over 70% from its highs in late 2021, with the market down over 40% in the financial year.
With cryptocurrency ownership on the rise, here’s a checklist of what accountants need to do this tax time to help their clients with crypto tax returns.
The rise of crypto in Australian portfolios
An early 2022 survey by Roy Morgan found that over one million Australians own at least one type of cryptocurrency, redefining crypto’s place within investment portfolios. The average investment value was just over $20,000, seeing crypto shift from a speculative asset class to something more legitimised over the past few years, particularly with institutional adoption of digital assets on the rise.
Whilst most Australian crypto holders are aged between 18–34, older Australians aged 50-plus hold the largest average investment by value, with average holdings exceeding $56,000.
Chainalysis estimates in 2021, Australia was among the top 20 countries for crypto gains (with about $3 billion). Despite the recent market calamity, it estimates Australians still have billions of dollars invested in crypto.
Clearly, more accountants are being pushed into the crypto taxation space as both retail investors and businesses seek additional guidance this financial year. With the roller-coaster price action crypto assets have seen this financial year, investors want to understand how they can manage their tax obligations ahead of their tax return lodgements.
How is crypto taxed in Australia?
The ATO has clarified it doesn’t view cryptocurrencies as foreign currencies. This followed announcements from countries such as El Salvador and the Central African Republic that announced Bitcoin would be recognised as legal tender.
Treasury clarified cryptocurrency would continue to be treated as property for taxation purposes, which means investors will pay capital gains tax rather than income tax.
In particular with cryptocurrency, it is important to understand the intentions of holding and trading in order to be able to differentiate between an ‘investor’ and ‘trader’ for tax purposes. How people are trading crypto and the utility that it provides to them will differ on a person-by-person basis, so understanding this is important.
The ATO recognised this before 30 June by updating their guidance to no longer refer to “cryptocurrencies” but rather provide examples of “crypto assets”, which range from stablecoins, non-fungible tokens (NFTs), decentralised finance (DeFi) tokens and gaming tokens.
Getting crypto taxes done
With everything from NFTs, DeFi, staking, airdrops and derivatives, the crypto world seems to have added layers of complexity on top of the already confusing financial world. Tax authorities worldwide are racing to keep up with the pace of innovation in the crypto space.
The ATO has recently stressed the importance of keeping proper records of all crypto transactions for tax time. This can be complicated and messy, often with thousands of transactions across hundreds of different wallets, exchanges and blockchains.
Having a crypto-savvy population in Australia will mean a rise in demand for accountants who understand crypto and can specialise in it to a certain extent. For existing accountants who may be fearful of entering new territory, there are helpful resources to help with the journey.
Crypto-tracking tools like Koinly allow investors or their accountants to quickly and easily import all transactions and generate tax reports from the past financial year, streamlining the countless hours this may take if done manually.
Crypto as an ongoing asset class
“As cryptocurrencies grow as an asset class into the future, it is important that crypto investors know their obligations at tax time.”
As cryptocurrencies grow as an asset class, it’s important that crypto investors know their obligations at tax time.
Tasked with keeping track of airdrops, interest payments or staking rewards, crypto investors may have interacted with hundreds of exchanges and wallets over the past financial year. In addition, the broader adoption of other crypto assets such as NFTs, capital gains or losses can be easily missed beyond only crypto-token gains and losses.
Both regulators and tax authorities (such as the ATO) strive to keep on top of the speed of innovation and novel ways in which people use crypto. Governments and institutions recognise that digital assets have powerful underlying blockchain technology and are here to stay.
Disclaimer: Koinly is not a financial adviser. Consider seeking independent legal, financial, taxation or other advice to check how this information relates to your unique circumstances.