Date posted: 1/03/2018 5 min read

Winter is coming for Bitcoin but I know nothing

Cryptocurrencies present new challenges to the ATO.

In brief

  • Cryptocurrency is becoming a fairly large blip on Canberra’s risk radar
  • Right now in Australia, there are no bespoke tax rules for crypto-activity
  • Come tax time, the ATO is likely to warn that crypto-currency activity has tax consequences

An increasing number of Chartered Accountants are reporting client contact on the tax ramifications of “investing” in cryptocurrencies. For ATO Commissioners, the question is simple: Come tax time, will those who’ve made cryptocurrency profits come forward and pay their tax?’

“Ordinary” taxpayers and parliamentarians will be watching with interest. On the flipside, tax regulators fear a hit to tax revenue from crypto-players claiming tax losses. 

Right now in Australia, there are no bespoke tax rules other than the 2017 legislation to remove double-taxation for GST purposes.

That means established tax principles, some developed eons ago – such as currency conversion rules – must again be pressed into service.

It may well be that existing tax frameworks will cope. But cryptocurrency is currently a fairly large blip on Canberra’s risk radar.  Although the Assistant Treasurer Michael Sukkar has described the Australian officials’ work as “at the embryonic stage”, what might be in store tax-wise do you think?

If I was in their shoes, I’d be exploring whether:

  • Cryptocurrency might be badged as a new, inherently speculative asset class for tax purposes and accorded special income tax treatment
  • The scenarios when a cryptocurrency tax realisation event occurs could be further clarified
  • Crypto-exchanges with clients in Australia could be required to register here, with attendant reporting obligations
  • Relevant taxpayers should register as cryptocurrency players and make specific tax disclosures on their tax returns
  • Cryptocurrency losses should be quarantined so that they can only offset gains of the same type.

For Tax Time 2018, I expect the ATO will be in outreach mode, telling taxpayers that crypto-currency activity has tax consequences, and warning of big penalties for non-disclosure. At least initially, those engaged in crypto activities will attract a high ATO risk rating and direct follow-up contact is likely (CAs preparing tax returns be warned!).

But all this is supposition on my part. ATO and Treasury officials reading this could well respond, saying “You know nothing” about what’s ahead for cryptocurrencies.

Winter is coming for Bitcoin, but I know nothing

Cryptocurrencies present new challenges to the ATO.

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