Tax Time: The most wonderful time of the year?
With the 2020 financial year behind us and the 2021 financial year looming, now is the time that digital asset users, businesses and advisers ought to be considering the preparation of their tax returns, and making sure they've accurately reported their digital currency related activity.
Taxpayers ought to be particularly aware of their obligations this year, following the ATO's forewarned crypto-crackdown in March 2020, which involved more than 350,000 letters being sent to Australian taxpayers identified by the ATO's data matching protocol as being associated with digital currency activity. The ATO warning letters closely resemble the American IRS 6174 and 6174-A letters, and follow the Joint Chiefs of Global Tax Enforcement's bid to tackle cryptocurrency and cybercrime-related risks.
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. This includes the opportunity to amend previously submitted tax returns.
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.
While the ATO has published guidance on the tax treatment of digital currencies in Australia, taxpayers unsure about their obligations or facing an ATO audit should consider seeking legal and financial advice.