Cryptocurrency: Potential $1.5B ATO Tax Missing From Bitcoin, Ethereum, Binance Profits

Is that brother-in-law of yours who loves to brag about the amount of money he has made on bitcoin one of the potential 300,000 Australians who have yet to report their cryptocurrency to the ATO?

If so, it could contribute a staggering amount potentially exceeding $1.5 billion in unreported crypto profits to the Australian Taxation Office.

What’s even more alarming: $1.5 billion is on the very conservative end of what that amount might actually be, according to a simple calculation using reliable data.

The calculation

Crypto tax software company Koinly has shared some findings from a recent survey, which found that out of an estimated 1.5 million Australians who dabble in cryptocurrencies, there are potentially 200,000-300,000 who have yet to report their cryptocurrencies to the ato.

Australia-based cryptocurrency exchange Swyftx revealed findings in its latest report that 72% of those Australians who invest in cryptocurrencies had an average profit of $11,013 on their investment last year.

Even using the lower end of these statistics, 72% of 200,000 people is 144,000 people, the number of people we can assume made an average profit of $11,013.

Let’s take those 144,000 people and be conservative assuming they didn’t earn more than the average amount of $11,013, which still equates to over $1.5 billion worth of undeclared cryptocurrencies to the tax office.

Considering the fact that many Australians have had higher returns than the average $11,013 amount, the total unreported to the ATO could be significantly higher.

Why is it important to report your cryptocurrency?

You are probably wondering, why does it matter whether or not I report my encryption?

The simple answer: The ATO already knows you own cryptocurrencies.

A spokesman for the tax office said that while cryptocurrencies appear “anonymous,” the ATO can trace money flows back to taxpayers through data from banks, financial institutions and online cryptocurrency exchanges.

Koinly Australia tax chief Danny Talwar described the ATO’s data matching program as “comprehensive”, finding “anomalies” reported in tax returns against data received from various institutions.

If the ATO is looking for more information, they can even make an inquiry directly with the relevant cryptocurrency exchange.

Leigh Travers, CEO of cryptocurrency exchange Binance Australia, revealed that Binance complies with all regulatory requests issued under “applicable legislation” by law enforcement and regulatory agencies.

While the ATO understands those who make real mistakes by allowing them to ‘change’ their tax return, those who willfully fail to report or choose to ‘take no action’ after identifying errors or omissions may be subject to scrutiny.

When is your cryptocurrency taxable?

The biggest myth is that cryptocurrency investors only have to pay taxes when they convert their cryptocurrencies into Australian dollars.

The truth is, you are responsible for reporting all cryptocurrencies that you disposed of during the financial year, whether you converted them into cash or made a gain or loss. These disposal events include exchanging one crypto asset for another, using cryptocurrencies to purchase goods and services, and even donating cryptocurrencies.

Talwar added that it is important for an individual to consider whether they have made a gain or loss on the disposal of their crypto asset, as their cryptocurrency is taxed at the applicable individual marginal income tax rate.

However, cryptocurrencies are not only limited to capital gains tax, but may also be subject to ordinary revenue in some cases.

If you gamble your cryptocurrency and earn interest or rewards as a result, this is ordinary income and you will need to add this amount to your taxable income.

Mr. Talwar said cryptocurrencies are taxed as ordinary income when they are received rather than when they are given away, for example, staking income or any interest from yield-generating activities.

The takeaway

The reality is that if you hold cryptocurrencies on a cryptocurrency exchange, not only does the ATO already know, but generally your accountant will as well. It will appear on your pre-fill when they go to complete your tax return that you own cryptocurrency and advise them to check with their client.

Travers believes Australians have a “responsibility” to file a truthful and accurate tax return, suggesting that crypto traders who were unaware of their tax obligations should amend their tax returns to accurately reflect this.

There is a wide range of cryptocurrency tax software that can help simplify this process for you, without giving up a whole weekend of entering data into a spreadsheet.

So the next time your brother-in-law talks about his earnings 100x on his latest bitcoin investment, ask him if he reported it to the ATO, tell him to download a crypto tax calculator, and send him the link to this article.

Ciaran Lyons is an accountant and avid cryptocurrency investor, with a background as a national radio presenter. He is a regular contributor to global cryptocurrency publications and was one of five Australians on the latest SBS series Filthy Rich and Homeless.

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