Cryptocurrency in simple words

A cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit. As we know normal money has physical notes and coins whilst cryptocurrency is entirely digital and stored on encrypted personal wallets protected by passwords. (A digital wallet can contain different types of cryptocurrencies however each cryptocurrency is a separate CGT asset)

You can invest in cryptocurrency using an online trading exchange. But be aware! Because the ATO wants to know if you make a profit out of that “investment” and tax you accordingly.

Are you buying cryptocurrencies as an investment? or
Are you trading one cryptocurrency for another cryptocurrency? or
Are you mining cryptocurrencies?

If you answered yes to any of the above you may have to pay tax on any profits made. This is because in the eyes of the ATO, Bitcoin and other cryptocurrencies are considered an asset, which means that selling them at a profit triggers a capital gains tax event which would similarly attract capital gains tax.

Recently the ATO announced that it has been cracking down on the profits made from cryptocurrency investing and trading. This along with the growth in popularity of Bitcoin and other cryptocurrencies as an investment choice mean we need to consider the tax impact of trading
and investing in these products.

This year, the ATO will be writing to around 100,000 taxpayers with cryptocurrency assets explaining their tax obligations and urging them to review their previously lodged returns.

The ATO will also prompt almost 300,000 taxpayers as they lodge their 2021 tax return to report their cryptocurrency capital gains or losses using pre-filled information.

Unfortunately, some taxpayers think that due to the anonymity that cryptocurrencies provides they can ignore their tax obligations which is incorrect and can cause a lot of headache with the ATO.

Call our office and get a one hour free consultation to know your obligations this year.