If you’ve been buying and selling crypto or non-fungible tokens (NFTs) during the course of the financial year, the Australian Taxation Office (ATO) could be throwing some extra attention your way this year.
This comes as the agency says it’s going to put extra focus on work-related expenses (particularly if you’re working from home), income from rental properties and, yes, any capital gains you may have made selling your crypto holdings.
With more than a million Aussies estimated to have transacted in digital currencies and NFTs this year, the ATO’s staff may be logging some overtime.
What not to do if you’ve lost money on cryptos or NFTs
Depending on your timing, you may have made or lost a fair bit of money in the notoriously volatile crypto market this year.
Since then Ethereum has lost 60% of its value and Bitcoin is down 58%.
If you’ve lost money on the way down, don’t try to offset that against your salary.
According to ATO assistant commissioner Tim Loh (quoted by 9 News):
Crypto is a popular type of asset and we expect to see more capital gains or capital losses reported in tax returns this year. Remember you can’t offset your crypto losses against your salary and wages.
Through our data collection processes, we know that many Aussies are buying, selling or exchanging digital coins and assets so it’s important people understand what this means for their tax obligations.
The ATO’s website helpfully adds, “Everybody involved in acquiring or disposing of cryptocurrency needs to keep records in relation to their cryptocurrency transactions.”
How to pay taxes on your digital asset investments
Back in March, The Motley Fool reached out to Mark Chapman, director of tax communications at H&R Block Australia, to help our readers get their crypto and NFT related tax filings in order.
He covered important topics like when the ATO considers disposal of your digital investments to occur, as well as the critical distinction on whether the tax agency will consider you to be a crypto investor or trader.
Then there’s the tricky question about avoiding the capital gains tax (CGT) by claiming a personal use exemption.
While that’s not entirely off the table, Chapman offered this advice:
Some taxpayers mistakenly think that you can buy up to $10,000 of crypto and avoid CGT by taking advantage of the personal use exemption.
This exemption only applies where the cost of the cryptocurrency does not exceed $10,000 and you can demonstrate that the cryptocurrency was to fund genuine personal consumption, such as paying for a holiday, a car, your wedding, etc.
Mistakenly relying on this exemption is one of the biggest reasons people fall foul of the ATO. Expect to be asked to provide proof that you either did – or intended to – use your cryptocurrency to fund personal spending on goods and services.
Where the cost of your crypto assets exceeds $10,000, the personal use exemption will not be available and CGT will apply, whether the asset was for personal use or not.
You can find that full interview here, with plenty of handy NFT and crypto tax tips from Chapman.