For some time now, the ATO’s data matching arm has been collecting bulk records from Australian cryptocurrency designated service providers. It follows a growth in Australian taxpayer participation with bitcoin and other cryptocurrency assets over recent years, with estimations from the ATO that between 500,000 to one million local taxpayers (including SMSFs) have invested in crypto assets.
ATO Deputy Commissioner Will Day announced that it will be working with other regulators, particularly AUSTRAC and ASIC, to make sure tax laws are adhered to within a whole-of-system approach. “The ATO is also working in a joint international effort as part of the Joint Chiefs of Global Tax Enforcement” (also known as J5) “aimed at investigating cryptocurrency-related tax evasion and money laundering,” he said.
According to a report from US-based blockchain and crypto news site BitcoinerX, the ATO expects a three-fold return on an estimated $1 billion spend on chasing what it calls “crypto tax”.
“To track down tax evaders, the ATO is working with cryptocurrency exchanges in Australia as well as global exchanges. The agency will analyse the user data gained from the exchanges and tax returns to see if the numbers add up,” the report says. “Cryptocurrency is taxed as a capital asset in Australia, which means any profit gained from selling bitcoin or other cryptocurrencies is taxable. Losses can be applied to offset any capital gains.”
The ATO’s Day says that cryptocurrency and blockchain technology “is seen as an enabler of existing risks for the ATO. Cryptocurrency has been used to move funds within the black economy, hide money offshore, and is sometimes linked to risks with unexplained wealth and undeclared taxable capital gains.”
Once a sizeable bulk of cryptocurrency data is matched to other data sets by the ATO, it plans to contact taxpayers identified to give them the opportunity, usually within a 28-day window, to verify the information it has collected before any compliance action is taken.
“Where people find that they have made an error or omission in their tax return they should contact the ATO as soon as possible,” Deputy Commissioner Day says. “Penalties may be significantly reduced in circumstances where we are contacted prior to an audit.”
The Australian revenue collection agency is far from alone in tackling cryptocurrency tax issues. The US’s IRS is already taking a “three-level” notification action plan regarding crypto tax enquiries — a “soft” notice, which indicates to the taxpayer that an anomaly may have occurred, a “not-so-soft” notice to indicate misreporting and possible follow-up should rectification not occur, and a final “hard” notice alleging non-compliance and likely IRS action.