Crypto investors often wonder how much information the ATO knows about their crypto related investments. Thinking that you can omit your crypto gains from your tax return is not a wise thing to do and will most likely get you into trouble with the ATO.
It would be foolish to assume that crypto exists purely in an anonymous digital landscape.
By obtaining information from banks, financial institutions and cryptocurrency exchanges, the ATO has the power to trace where your crypto interacts with the ‘real world’ to follow the funds back to the taxpayer.
If you have an account with an Australian cryptocurrency designated service provider (DSP), it is highly likely that your data is currently on file with the ATO and they know about your crypto related activities.
The ATO has had a cryptocurrency data-matching program operating since April 2019. The program allows the ATO to access data held by designated service providers, which includes crypto exchanges such as; Binance, CoinJar, CoinSpot and so on.
The collected data is used to identify the buyers and sellers of crypto, and to quantify the related transactions.
The next the step that the ATO undertakes is to compare the data provided by DSPs with its own records. This task takes place for the purpose of identifying individuals who are failing to meet their registration, reporting, submitting, and payment obligations.
Under Australian law the DSPs are required to provide the ATO with any information they requested. That means that the ATO has the ‘know your customer’ (KYC) information you provided when signing up for any Australian exchange or wallet. This includes personal information and transaction data such as; your name, address, phone number, bank account details, transaction dates, asset types and transaction values.
The ATO has the capacity to access crypto transaction related data from as far back as 2014.
Every crypto exchange has been reporting information to the ATO since 2018. This is because all because all Australian businesses who are offering Digital Currency Exchange (DCE) are legally required as of 2018 to meet the Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) obligations.
These obligations include;
- Maintain strict KYC policies
- Adopting and maintaining an AML/CTF program to identify, mitigate and manage money laundering and terrorism financing risks.
- Identifying and verifying the identities of their customers.
- Reporting to AUSTRAC suspicious matters, and transactions involving physical currency of $10,000 or more.
- Keeping certain records for seven years.
Under the data-matching program, the ATO has obtained data on cryptocurrency transactions for the 2014-15 to the 2019-20 financial years. The ATO has made it very clear that they have the power to track crypto and will not hesitate to contact taxpayers who are not following the rules. The ATO has made it clear that Australians who have sold, traded or earned cryptocurrency will need to report that in their annual income tax return.
After the data matching exercise is undertaken the crypto investor might be contacted by the ATO. The reason the crypto investor is contacted is for them to verify the information collected, before any compliance action is undertaken.
The ATO states that people will be given at least 28 days to clarify any information that has been obtained from the data provider.
Whenever a taxpayer discovers that they have made an error or omission in their tax return, they are encouraged to contact the ATO as soon as possible. The sooner you contact the better because penalties you receive might be significantly reduced where the ATO has been contacted prior to them undertaking an audit.
If investors make a mistake, they can request a self-amendment or make a voluntary disclosure, and if they need assistance paying their taxes, they can contact the ATO.
If you find yourself in the situation of receiving a data-matching letter from the ATO you must receive your records. The action you take will depend on whether you agree or disagree with the information the ATO has included in your letter.
If You Agree
You should compare the information contained in the letter against your records such as your bank and private health insurance statements.
If you agree with the information in your letter, you will not be required to contact the ATO. This is because if you agree to the information provided in the letter, the ATO will automatically send you an amended assessment.
If you the taxpayer notices that, in addition to the amounts the ATO have shown, you have omitted income from other sources or from the same source in other income years, you should give the ATO the details so they can include it in your amended assessments.
It is important to keep in mind that you might receive another letter in the future if you fail to declare all your income. The ATO has strict policies and is always checking closely to discover missing, inaccurate or incomplete information on tax returns.
If You Disagree
If you disagree with the information the ATO has said they have, you will need to contact the ATO within the timeframe outlined in the letter you received.
The ATO might then ask you to provide supporting documentation.
If You Lodged Via a Tax Agent
If you have decided to lodge via a tax agent you are responsible for all information on your tax return even if a tax agent completes it for you.
It is super important to ensure that you bring all relevant facts to the attention of the agent or adviser. You are expected to honestly answer any questions asked by the agent regarding the preparation of your tax return.