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Cryptocurrency punters who cashed in on price boom won’t escape the taxman’s gaze

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Nick BruiningThe West Australian
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Assistant commissioner for taxation Tim Loh says investors should not underestimate the data-matching abilities of the taxman.
Camera IconAssistant commissioner for taxation Tim Loh says investors should not underestimate the data-matching abilities of the taxman. Credit: ersinkisacik/Getty Images

If you thought the anonymity of the internet might save you from the far-reaching tentacles of the Australian Tax Office, think again

The ATO will be asking trading platforms and financial institutions to hand over the data on more than 600,000 Australian crypto investors.

Assistant commissioner for taxation Tim Loh says investors should not underestimate the data-matching abilities of the taxman.

“While it appears that cryptocurrency operates in an anonymous digital world, we closely track where it interacts with the real world through data from banks, financial institutions and cryptocurrency online exchanges to follow the money back to the taxpayer,” Mr Loh said.

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Put simply, buying a crypto asset will at some point involve you transferring real money to a crypto exchange or broker. When you sell, that transaction becomes an event for tax purposes and that too, will get back to the ATO.

If you buy something else with the proceeds and don’t convert it back to real money, that doesn’t change things. Even a paper profit becomes a taxable event. For example, someone who bought $5000 worth of Bitcoin around July 2020 and sold near the highs in November last year made a 550 per cent profit, or $27,500.

Even if they bought another crypto asset such as an NFT digital image with the proceeds, the $27,500 becomes taxable income.

“The best tip to nail your cryptocurrency gains and losses is to keep accurate records including dates of transactions, the value in Australian dollars at the time of the transactions, what the transactions were for, and who the other party was, even if it’s just their wallet address,” Mr Loh said.

All of that information needs to be retained for five years and the gains and losses included with this year’s tax return. That will need to be lodged by October 31 if you are doing it yourself.

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