Cryptocurrency is to receive a lot more attention from the ATO.

The following looks at three issues. All were raised in May and the topics covered are: ATO zeroes in on crypto investments; What is needed to manager a crypto tax return; and Deductions for crypto donations run tax risks.

How does the ATO treat cryptocurrency?

In Australia, individuals transacting with cryptocurrency may incur tax liabilities in the form of Capital Gains Tax (CGT) or Income Tax. The type of tax payable (as well as the quantity of how much) will depend on the type of transaction in question. As an example, crypto to crypto swaps (such as swapping an amount of Bitcoin for an equivalent amount of Ethereum) incurs capital gains tax, whereas receiving an airdrop (coins or tokens given without costs during an ICO for example) would incur income tax.

What information will the ATO need?

• The date of the transactions
• The value of the cryptocurrency in Australian dollars at the time of the transaction (which can be taken from a reputable online exchange)
• What the transaction was for and who the other party was (even if it’s just their cryptocurrency address).

You and your client will also need to keep track of:

• Receipts of purchase and/or transfer of cryptocurrency
• Exchange records
• Records of accountant and legal costs
• Digital wallet records

ATO zeroes in on crypto investments

The Tax Office has revealed its priority areas for this year’s returns and one is capital gains from cryptocurrency.

Assistant commissioner Tim Loh said if taxpayers had disposed of an asset such as property, shares or a crypto asset including NFTs this financial year, they would need to calculate a capital gain or capital loss and record it in the tax return.

“Crypto is a popular type of asset and we expect to see more capital gains or capital losses reported in tax returns this year,” Mr Loh said.

“Generally, a capital gain or capital loss is the difference between what an asset cost you and what you receive when you dispose of it.

“Remember you can’t offset your crypto losses against your salary and wages.

“Through our data collection processes, we know that many Aussies are buying, selling or exchanging digital coins and assets so it’s important people understand what this means for their tax obligations.”

H&R Block head of tax communications Mark Chapman said the ATO was collecting bulk records from Australian cryptocurrency designated service providers as part of a data-matching program to ensure people trading in cryptocurrency are paying the right amount of tax.

“Data to be provided to the ATO will include cryptocurrency purchase and sale information,” he said. “The data will identify taxpayers who fail to disclose their income details correctly.”

Deductions for crypto donations run tax risks

There are hurdles for taxpayers who want to claim this form of donation, says the ATO.

Cryptocurrency donations may be subject to both CGT and donation tax rules, the ATO said in updated assessment guidance.

“If investors are thinking about donating crypto assets, there are a few things they need to consider,” the ATO said.

Where donations were intended for not-for-profit organisations, it was vital that they were set up to accept crypto assets and they were transferred into the recipient’s legal name.

To claim a tax deduction for a gift or donation of a crypto asset, it had to meet the gifts and donations conditions and gift types, requirements and valuation rules.

“Donors can only claim a tax deduction for gifts or donations to organisations that have a status as a deductible gift recipient (DGR),” the ATO said.

“They can’t claim tax deductions for gifts or donations made to social media or crowdfunding platforms unless the recipient of the gift or donation has DGR status.”

The ATO said taxpayers should check the DGR status of an organisation at ABN Lookup: deductible gift recipients.

“Because crypto assets are property, if you donate crypto assets there may be CGT consequences,” the ATO said.

“Donating crypto assets is a CGT event, similar to any other disposal of an asset.”

The ATO said if CGT applied to a gift of crypto assets, they would be received at the market value of the asset at the time of the CGT event.

“Generally, donors don’t have to pay CGT when donating crypto assets to DGRs for gifts made under a will (testamentary gifts) – but you can’t claim a tax deduction for these,” the ATO said.

This also included property donated under the Cultural Gifts Program and personal use assets.

“Most donors will need to report the crypto asset transaction at both the CGT and the gifts and donations sections of their tax return,” the ATO said.

It was vital to keep good records for all transactions with cryptocurrency, whether it was being used as an investment, for personal use or in business.

Clients should record the date of the transactions, the value of the cryptocurrency in Australian dollars at the time of the transaction (which can be taken from a reputable online exchange) and what the transaction was for and who the other party was (even if it’s just their cryptocurrency address).

“The sorts of records you should keep include receipts of purchase or transfer of cryptocurrency, exchange records and records of agent, accountant and legal costs,” the ATO said.

“This also includes digital wallet records and keys and software costs related to managing your tax affairs.”

(This information comes from AccountantsDaily.com.au)