T Skevington and M Bacina
ATO targets crypto trading taxpayers with "friendly" reminders
The Australian Tax Office (ATO) has begun sending “friendly“ reminders to taxpayers who transacted in digital currencies in the 2018 financial year. In the coming two months, the ATO expects to contact “as many as 350,000 individuals who have traded in cryptocurrency in the last few years.”
The ATO will reportedly be writing to taxpayers, in a form not unlike the above image, that it suspects of holding or transacting cryptocurrency. This is expected regardless of whether or not the taxpayer has sold or traded over the past financial year. The purpose of these communications is to “remind them of their tax obligations and the records they should be keeping.”
In digital currency's early years, there was confusion over reporting and in some corners a libertarian mindset of non-reporting.
But in April 2019, the ATO announced they had been using data matching techniques against data obtained from digital currency exchanges. While the ATO haven't explicitly confirmed it, there’s no doubt that data will be used to compare against tax returns lodged with the ATO.
At the time, the ATO explained:
Using this data we’ve found that due to the complex nature of cryptocurrencies, some people may not be aware that there may be tax obligations, so our campaign is designed to help raise awareness and give people the opportunity to fix any mistakes.
From the reminders that have come through so far, the ATO is allowing taxpayers to amend their tax return by 1 April 2020. In our experience, where the ATO considers that a genuine mistake has been made (which happens, tax is confusing), they regularly give taxpayers the opportunity to self-correct without penalty.
However, where discrepancies or failures to report are not resolved in a timely manner, taxpayers are likely to incur both fines and penalties as well as a general interest charge, which is currently about 7.89% per annum compounding daily. Failures to report will also likely lead to more comprehensive audits of your other tax returns.
These reminders form part of a global crackdown by tax authorities on undeclared digital currency transactions.
The ATO is a member of the Joint Chiefs of Global Tax Enforcement (J5), an international taskforce of tax enforcement authorities incluidng Australia, Canada, the Netherlands, the United Kingdom and the United States, established in July 2018 in a bid to tackle cryptocurrency- and cybercrime-related risks. In the US the IRS has emphasised that they are actively investigating non-compliance in the crypto space, and will be imposing penalties and interest, or seeking criminal prosecution, for those who fail to comply.