Are you or your friends and family members thinking about investing in cryptocurrency? It can be a lucrative endeavour, but it’s important to tread carefully, especially when it comes to the complex nature of crypto taxation in Australia. If you fail to comply with cryptocurrency taxation regulations in Australia, there can be various consequences depending on the severity and nature of the non-compliance.
The Australian Taxation Office (ATO) has been actively focusing on cryptocurrency-related tax compliance in recent years, aiming to ensure that individuals and businesses meet their obligations. By familiarising yourself with the tax obligations and potential risks associated with cryptocurrencies, you will be on your way to a smooth and compliant investment journey.
Here are some common pitfalls to consider when investing in cryptocurrency.
- Understanding Taxable Events: Failing to recognise when a taxable event occurs, such as selling or exchanging cryptocurrencies, can lead to mistakes in tax reporting.
- Reporting Accuracy: Accurately reporting crypto transactions is essential. Failing to report them or omitting them from tax returns can result in penalties.
- Record-Keeping: Maintaining accurate records is critical. Keep track of acquisition and disposal dates, transaction values in Australian dollars, and associated fees. Inadequate record-keeping can lead to challenges in calculating capital gains or losses.
- Capital Gains Tax (CGT) Confusion: CGT applies to cryptocurrency disposal. Understanding the rules and how they apply to your situation is crucial, as profits from selling or exchanging crypto may be subject to CGT.
- Airdrops and Forks: Airdrops and forks, where you receive additional cryptocurrency, may have tax implications. Ignoring them can lead to underreporting income and potential penalties.
- Classification of Crypto Activities: Different tax treatments apply to various crypto activities. Misclassifying activities like investing, trading, mining, or receiving crypto as income can lead to incorrect tax reporting.
- Proof of ownership: With different structures of investing, proving who owns the cryptocurrency is very important to ensure compliance needs are met.
Venturing into cryptocurrency investment can be a rewarding experience, however, it is crucial to approach it cautiously and be mindful of the potential risks involved. If you are uncertain about any of these potential pitfalls, we strongly advise seeking support from an expert who can assist you in minimising the risks associated with cryptocurrency. APS Tax now offers tailored cryptocurrency support to help you navigate the complexities associated with tax and make informed financial decisions.
Written by APS Senior Accountant, Stephen Fry.
Stephen is an accountant with over 13 years of professional expertise in the areas of taxation and accounting. Currently serving as a senior tax accountant at APS Tax, Stephen offers comprehensive guidance and ensures compliance in all tax-related matters. He has developed a specialised focus in areas such as self-managed superannuation funds, cryptocurrency taxation and leveraging software and technology to assist clients to streamline their processes. Beyond his professional pursuits, Stephen cherishes quality time with his family and enjoys unwinding on the golf course. On the weekends he also enjoys following the AFL and watching British comedy television.