Most digital currency buyers and sellers will fail to qualify as businesses and fall under CGT rules.
Careful with those crypto losses, Tax Office warns
Cryptocurrency losses will have to be offset against capital gains rather than income for the vast majority of taxpayers, said ATO Assistant Commissioner Tim Loh.
Tax agents would need to quiz clients closely if they wanted to claim crypto transaction losses as business revenue, he said, and the ATO had data-matching systems to check.
Speaking on this week’s Accountants Daily podcast, Mr Loh said thousands of Australians had got involved with digital currencies during the pandemic and as a result the ATO had focused on crypto last year.
“Nearly 800,000 people have invested in crypto just in the last few years, and last year alone, 300,000 people were investing for the first time,” Mr Loh said.
“Last year we were focused on crypto … we had over 500,000 prefilled messages that occurred when clients of tax agents and people were lodging their tax return themselves to inform the tax agent and taxpayer that they had a crypto transaction.
“So we have data matching protocols with a number of the Australian crypto asset exchanges and they share that information with us.”
He said how a taxpayer could offset crypto gains or losses depended on their facts and circumstances.
“For the majority of people, most of them will be investors in crypto. So they’ll either have a capital gain or a capital loss, depending on their particular facts and circumstances,” he said.
“If they’re an investor, they can’t offset any losses against their salary and wages.
“But what they can do is offset any of their losses against other capital gains that they might have made – whether it’s from crypto, whether it’s from shares, or whether it’s from property.
“If they can’t offset those losses, they can carry forward to future income years in which they can offset those capital losses against other capital gains.”
He said tax agents should help clients by making sure carry-forward capital losses were included in returns.
If a taxpayer wanted to offset losses against income, they would have to persuade the ATO that crypto trading was a business activity, and it was vital for tax agents to ask the right questions.
“It’s really going to depend on whether someone is actually carrying on a business and trading in cryptocurrency,” he said. “Whether someone is in that boat will really depend on the questions that the tax agent asks the client.”
Factors the ATO took into account included:
- Is the crypto trading being undertaken for commercial reasons, in a commercially viable way?
- Are activities being conducted in a business-like manner?
- Is there a business plan involving crypto acquisitions?
- Are there good records in relation to the acquisition and sale of crypto?
- Is the intention to make a profit or a genuine belief that profits can be made?
Less than 5 per cent of people buying and selling crypto were likely to fall into the business category, Mr Loh said.
“It’s really important to ask that extra question as a tax agent – it’s part of your obligations,” Mr Loh said.
“We’re not asking you to do a forensic investigation of the client’s affairs, but we are asking tax agents that as part of their obligations that you should be asking that extra question about what the client is doing.”
Listen to this week’s Accountants Daily podcast with ATO Assistant Commissioner Tim Loh by using the link below: