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1 July, 2021

ATO to target cryptocurrency investors

THE Australian Taxation Office (ATO) has flagged cryptocurrency as an area of interest this year.

Media reports earlier this month revealed that up to 3.3million Australians may be cryptocurrency investors.

There are some misconceptions surrounding an investment of this nature.

The ATO is concerned that some investors believe their cryptocurrency investment gains are tax-free and only taxable once the holdings are converted back into Australian dollars.

Dr. Ray Hamey from Sierra Accounting and Consulting believes some cryptocurrency investors may be caught out this year.

“Cryptocurrency trading needs to be accounted for in your income tax return.  The taxpayer needs to account for the profit (gain) or loss in their income tax return.

“Gains from cryptocurrency are similar to gains from other investments, such as shares.

“Generally, as an investor, if you buy, sell, swap for fiat currency, or exchange one cryptocurrency for another, it will be subject to capital gains tax (CGT) and must be reported,” he said.

Buying and selling frequently, say, daily or weekly for example, suggests that this activity is unlikely to be classified as a passive investment. 

Another important aspect of this cryptocurrency ‘trading’, is whether you are an investor with a passive income or whether you are a trader who buys and sells. 

This does not just apply to cryptocurrency but to all assets. 

An investor is one who buys, for example, a rental property and rents the property out for a number of years and then sells. 

This person is a passive investor whereas someone who buys and sells frequently looks less like a passive investor and more like a trader. 

Cryptocurrency does not appear to pay interest or dividends but generates a profit on a buying and selling operation.

So, what is the difference?  A passive investor, on selling the asset after holding the asset for 12 months or more, will receive 50 per cent discount on the taxable component of the capital gain. 

A trader does not.  A trader is simply like a supermarket where you buy goods, and you sell them so you pay tax on the profit. 

A trader does not get the 50 per cent discount.  If you continually buy and sell assets such as shares, you may be considered a trader and not a passive investor. 

“You need to be careful and aware of the tax implications by becoming a trader.

“There are a lot of advantages in being a passive investor such as holding shares for some years before selling to make a profit compared to that of a trader who buys and sells. 

“A trader however might make their living simply by buying and selling shares or other investments. 

“Another key factor is whether or not you have another income such as employment and buy shares to hold for a considerable time and then sell. 

“A trader, often, but not necessarily, does not have employment elsewhere and buys and sells shares or other assets on a daily basis as their business,” Dr Hamey said.

The ideal way to ensure you comply with ATO requirement is to use a registered tax agent. If you are currently a holder of cryptocurrency or thinking about investing in digital currency you should speak to a tax agent with specialist knowledge and skills in this area.

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