Cryptocurrency compliance may include income and CGT

Cryptocurrency compliance may include income and CGT. Bitcoin is “neither money nor a foreign currency” the ATO warns, but it is still an asset that can be treated as income or counted as capital gains.

In Part 3 of our series on bitcoin, we look at the compliance implications of operating bitcoin and how the ATO intends to monitor cryptocurrencies in general. Part 1 of our series on bitcoin looked at the tax consequences for those who invest in bitcoin on a personal level. Part 2 examined the tax consequences for businesses that buy and sell bitcoin, mine bitcoin, and what happens when bitcoin is used in transactions. With recent news of the ATO’s new cryptocurrency task force, here in Part 3 we cover compliance.

Cryptocurrency compliance task force

It has been reported recently that the ATO has created a specialist task force to identify and track cryptocurrency transactions and counter tax evasion in this area. The ATO will work closely with banks but it also has a team of experts on hand, including tax experts, lawyers, financial advisers and technology specialists. They will meet for the first time in February 2018. A spokesman commenting on the topics for discussion advised:

“We will discuss common queries and scenarios, practical issues and the tax implications for current and anticipated future developments in relation to cryptocurrencies.”

Liabilities for transactions

While the ATO is formulating their strategy in this area, you might want to know what liabilities you could face if you have already invested in bitcoin and its value has either risen (resulting in a gain) – or what will happen if it has fallen (leading to a loss) – following a deal.

Example

A property seller receiving $1 million in cash may have to pay tax on the profit at the end of the tax year based on the sale being completed for $1 million. A seller who receives $1 million in bitcoin that doubles in value from the day the property settlement takes place may have to pay CGT not only on the $1 million property sale, but potentially also on the $1 million gain on the bitcoin if it is later spent or converted to cash.

Cryptocurrency compliance may include income and CGT, how will ATO keep track?

The ATO has access to data matching already and they can gain access to bank accounts to look for transactions relating to payments made or received, for example to trace purchases of property or luxury cars.

Hunter Partners are Accountants, Tax Agents and Financial Planners. We can assist you with all aspect of your accounting, tax and financial planning requirements, call Hunter Partners on (07) 4723-1223.