The ATO wants to hear from you (yes, YOU) on cryptocurrency tax
Learn what the ATO wants to hear about, and some things to consider if you want to give the ATO feedback.
Every sensible tax authority in the world wants to make it as easy as possible for citizens to pay taxes. Cryptocurrencies have complicated that somewhat.
In a nutshell, you have to pay capital gains tax on cryptocurrency appreciation when you make a profit from exchanging or selling it. Capital losses, from any loss of value, can be used to offset capital gains, but not any other kind of income.
The problem is that cryptocurrencies are completely different to other assets. They can change hands more frequently, be traded for each other, be partially cashed out and basically create an annoying spider web of excessively complicated tax obligations.
The ATO feels your pain. If you're into crypto, it wants feedback from you – yes, you – on how to better craft regulations to make it easier to pay taxes on cryptocurrency. Give your feedback here on the ATO feedback form. Specifically, they are looking for feedback around issues with record keeping and exchanging one cryptocurrency for another.
Record keeping and crypto transactions
The rules for capital gains tax (CGT) require you to keep records of "whatever can reasonably be expected to be relevant to working out whether you have made a capital gain or loss from a CGT event", including the following:
- The date of the transaction.
- The value of the cryptocurrency in Australian dollars at the time of the transaction.
- What the transaction was for and who the other party was, even if it’s just their cryptocurrency wallet address.
Essentially, you are expected to keep these details for every crypto transaction you make.
"Where you exchange one cryptocurrency for another cryptocurrency, you dispose of one CGT asset and acquire another CGT asset... You must compare the CGT cost base of the cryptocurrency item disposed of with the market value of the new cryptocurrency item obtained for all exchange transactions.
"Records need to be retained for each transaction, in accordance with the record keeping rules. This means that each item is separately accounted for and recorded when it is acquired and disposed of, with relevant Australian dollar values recorded.
"It does not matter how many exchange transactions you undertake. You need to undertake this process for every transaction occurring during the income year," the ATO says.
The ATO wants to know the following:
- If there are any practical issues that make this unfeasible or unrealistic.
- If there are any specific factors that should be taken into account when developing further rules for cryptocurrency record keeping.
Issues one might raise
If any of the following is relevant to you, then you might consider dropping it into the ATO feedback form.
- Problems around valuing coins. If you sell a coin at a premium price, do you take down the coin's market value or the amount that you sold it for? How are you meant to record coins whose value cannot be determined in Australian dollars at the time of the transaction? If a coin is not on the open market at a given time, is its value technically zero?
- Do transaction fees count as separate transactions in their own right? Would you be able to claim transaction fees paid as capital losses? In the case of bitcoin, the fees might be significant.
- What if the other party is anonymous and you know they're using a multisig wallet or otherwise using a disposable wallet address such as IOTA Tangle addresses (destroyed upon sending funds out of it). Should you just record a wallet address that you know is meaningless and will soon be destroyed?
- Does transferring a coin onto a centralised exchange count as a transaction? Or does it only become a transaction once you sell it on that exchange?
- What about day trading? If you're making dozens of transactions per hour, are you really meant to record the exact values (in Australian dollars, no less), the recipients and everything else for every single one of them?
- Does mining income count as a transaction? What about Ethereum games? And what about blockchain-based games whose in-game items are digital assets stored on a distributed ledger? Do those count as cryptocurrencies? Do people actually have to pay capital gains tax on video game items? If so, do you have to record the exact time you found the item in the game and its value in Australian dollars at the time of discovery?
- What about stablecoins? Technically, stablecoins like Tether should hold a constant value, so any time you trade with a stablecoin, you're making a value-neutral trade by definition. Many people use "tethering" to help hold value during cryptocurrency market crashes, and then buy back in once the market reaches the bottom. If you do that, then have you technically just made a series of non-taxable value-neutral trades which may have magically multiplied along the way, rather than actually appreciated in value?
There's been a lot of progress on clarifying tax laws for cryptocurrencies, but it's still very ambiguous in a lot of places.
Disclosure: At the time of writing, the author holds ETH, IOTA, ICX, VEN, XLM, BTC and NANO.
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