The ATO says that for those carrying on a business that involves transacting with cryptocurrency, the trading stock rules apply, rather than the capital gains tax (CGT) rules.
The ATO's guidelines on the tax treatment of cryptocurrencies have recently been updated, following feedback from community consultation earlier this year. The ATO has provided additional guidance on the practical issues of exchanging one cryptocurrency for another, and the recordkeeping requirements. The ATO received about 800 pieces of individual feedback and submissions.
Through the feedback, the ATO identified the five most frequently raised issues and its current response to these issues, as follows:
- Issue 1: In many situations, cryptocurrency transactions cannot reasonably be accounted for on a transaction-by-transaction basis, and the only reasonable approach is taxing on a fiat-in and fiat-out basis
ATO response: The normal recordkeeping rules under the tax laws apply to cryptocurrency transactions as with any other transactions involving the disposal of property. As part of the ATO's research, it discovered low-cost software solutions that can both record each cryptocurrency transaction (including cryptocurrency-to-cryptocurrency transactions) and convert the value of the proceeds into Australian dollars.
- Issue 2: High fluctuations in values make it difficult to value cryptocurrency.
ATO response: The ATO heard that high fluctuations in value could create large changes in the "paper" value of cryptocurrency portfolios, compared to realised gains. As cryptocurrencies are generally CGT assets, any gains are not realised until the time of disposal. This is an issue in all investments, and managing this risk falls into the realm of tax planning.
- Issue 3: Records have not been kept, and we can't reconstruct them now.
- Issue 4: It is hard to keep records of high volume trades, particularly in ascertaining value for each trade.
- Issue 5: There is difficulty in accessing the data required for proper recordkeeping.
ATO response to issues 3, 4 and 5: The normal recordkeeping rules under the tax laws apply to cryptocurrency transactions, as with any other transactions involving the disposal of property. As part of the ATO's research, it discovered low-cost software solutions that can both record each cryptocurrency transaction (including cryptocurrency-to-cryptocurrency transactions) and convert the value of the proceeds into Australian dollars. The software can take information directly from the exchange or a digital wallet and do the calculations, which helps alleviate the issues with recording trades and accessing data. This type of software may be suitable for cryptocurrency recordkeeping. In most cases, it may be possible to reconstruct records through historical information available from digital currency exchanges, wallet transactions or even normal bank account transactions. Market values of various cryptocurrency can also be obtained from a reputable online exchange.