How should the new information -based blockchain economy be reported on tax returns?
What is Cryptocurrency?
A cryptocurrency is often used to describe a digital asset in which cryptography is used to regulate the generation of additional units and verify transactions on the blockchain. It usually operates independently of central banks, central agencies or governments, which is why this is a new area of tax rules.
The Australia Cryptocurrency Tax Guide:
Currently, the creation, trading, and use of cryptocurrencies are rapidly evolving. Therefore, the tax rules on cryptocurrencies are also of particular interest, including How the ATO deals with cryptocurrency taxation rules? Do taxes apply to every crypto activity?
Cryptocurrency tax implementation, how is it taxed?
Whenever you are involved in acquiring or disposing of cryptocurrencies, you need to understand the tax consequences. These depend on the nature of your situation.
Crypto’s tax implementation can be vary and also difficult to identify, as an individual taxpayer, the ATO taxes cryptocurrency as “capital gain tax (CGT) asset, this means capital gain tax incurs when:
- Selling or giving away cryptocurrency.
- Exchange, trade, or swap cryptocurrency (including trading one crypto for another).
- Convert cryptocurrency into conventional (fiat) currency, such Australian dollars.
- Use cryptocurrencies to purchase goods and services.
On the other hand, income tax is applied if you operate a business as a frequent cryptocurrency trader when:
- Crypto mine.
- Earn cryptocurrency through yield farming, airdrops, and staking.
- Pay with cryptocurrency.
- Disposal of cryptocurrency as part of a business operation.
What happens if I switching ‘wallet’?
There’s no tax to pay when switching cryptocurrency from your wallets to another wallet that also under your ownership, but it is necessary to maintain track of the initial transfer amounts and keep enough records. More importantly, switching ‘wallet’ won’t hide your capital gain or losses.
How is Crypto substantiated?
If you hold crypto assets as investments, you may have to pay tax on your net capital gains for the year, as like with other CGT assets. Before counting cryptocurrencies, it is important to keep good records of all your transactions with cryptocurrencies, whether you are using them as an investment, for personal use, or for business. This is:
- Records of Crypto Assets and Crypto Transactions
- Convert the value of a crypto asset into Australian dollars.
- Keep details of each crypto asset as they are separate CGT assets.
Can anyone hide from ATO for Crypto investments?
Some people may wonder ‘how the ATO knows about their crypto investments?’
In fact, if someone create an account with any Australian cryptocurrency provider, the ATO may already have the person’s data.
The ATO has records of cryptocurrency transactions dating back to 2014, and has continued to expand the sources and categories of data they can legally access. Thus, there is no one can hide the Crypto investment from ATO.
What happens if I made a loss?
Poor judgement happens, but an experienced accountant could prevent you from further investment losses, in one hand, losses will also need to be reported on your tax return, on the other hand, you may be eligible for a capital loss to reduce your tax return, making it one of the best ways to reducing your crypto taxes.
Therefore, to correctly identify and calculate the tax with cryptocurrency can be challenging but essential to sophisticated investors.
If you are seeking advice on your specific situation, please feel free to contact us for further advice.How should the new information -based blockchain economy be reported on tax returns?