Cryptocurrency Taxation in Australia: ATO Regulations and Compliance

This report provides a comprehensive overview of cryptocurrency taxation in Australia. It begins by defining cryptocurrency and discussing its use, particularly Bitcoin, in the Australian context. The report then delves into how the Australian Taxation Office (ATO) regulates and taxes cryptocurrencies, differentiating between personal consumption and speculative gains. It explains that profits from cryptocurrency are typically treated as capital gains, and taxable as income. The report also examines the role of revenue authorities, highlighting the steps the government and ATO are taking to ensure correct taxation, including increased transparency measures, anti-money laundering rules, and the formation of specialized task forces. Furthermore, the report details the various measures being implemented by the ATO to detect and address tax evasion related to cryptocurrency, such as the establishment of task forces with experts from various fields, collaboration with global organizations, and the requirement to report cryptocurrency holdings on tax returns. Overall, the report provides a detailed analysis of the current state of cryptocurrency taxation in Australia and the efforts being made to ensure compliance and prevent tax evasion.

Taxing of Cryptocurrency

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
Part One...........................................................................................................................................1
Part Two ..........................................................................................................................................1
A) Meaning of cryptocurrency...............................................................................................1
B) Cryptocurrency taxed in Australia.....................................................................................2
C) Role of revenue authorities for correct taxation................................................................3
D) Measures being taken by tax authorities for ensuring taxpayers fulfil their liabilities.....3
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................4

INTRODUCTION
Cryptocurrencies are usually in the form of online currencies which are used by investors
to earn capital gains. Present report deals with working of cryptocurrency in Australia. In
addressing this, Bitcoin which is a type of cryptocurrency is mostly used currency belonging to
this context. Role of ATO in ascertaining taxes on cryptocurrencies is also discussed in the
report. Furthermore, various measures and steps are taken in order to eradicate tax evasion up to
a high extent that will also be explained.
Part One
Referred to newspaper articles
Part Two
A) Meaning of cryptocurrency
Cryptocurrency is a kind of digital currency for purchase and sale of commodities and
goods through the internet. It is also used by investors' looking for trade in currency for the
purpose of earning profits in the best possible manner. Moreover, investors' may also use
cryptocurrency for producing gains on long-term investments in effective manner. This type of
currency is different from other regular types of currencies as it is created digitally for the
purpose of exchange and is effectively used by investors to earn profits with much ease. Among
these currencies, Bitcoin is widely used by private individuals and so, gains can be garnered in
effectual way. Cryptocurrency means that it has decentralised control and as such, they are
controlled by users as exchange is done by them. These currencies are built in complex protocols
so that investors may be provided with adequate security in the best possible manner and
government and banks do not make any decisions regarding cryptocurrency (Rubinstein and
Vettori, 2018).
Moreover, working of these currencies is different as well. It has source codes and other
technical controls so that it may be securely traded by the interested individuals in effective
manner and thus, due to high security, cryptocurrencies are difficult to trade with as well. The
governing concepts of these currencies are numerous. In relation to this, first concept is block-
chain. It is type of ledger which stores information of all previously done transactions and as
such, at a given time period, units of currencies are validated of investors (Clements, 2018).
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Another concept of cryptocurrency is that private keys are there for every individuals for
authenticating respective identities in effective way. Moreover, there are wallets having unique
information which includes temporary units of currencies. Miners also prevails in
cryptocurrencies as records are kept by them. They provide accuracy of units held by investors
and security of block-chains in respect of currency. Furthermore, there are finite supply as
miners produces fresh units of cryptocurrency. Thus, investors' enjoy trading in such currencies
and as such, profits are effectively attained by them in the best possible manner (Wimbush,
2018).
B) Cryptocurrency taxed in Australia
The Australian government ensures that all taxpayers trading in cryptocurrencies pay
their taxes as per the norms implemented by authority. In relation to this, ATO (Australian
Taxation Office) regulates taxation with regards to such currencies. Bitcoin is used mainly by
investors in Australia at the moment. In addressing this, ATO has classified that there are two
reasons for which Bitcoin is purchased by the investors. First one is for personal consumption
and other one is speculative gain. With regards to this, as per the norms of ATO, each and every
transactions should be fully documented which implies that investor should justify what is
purchased by them and why is it purchased.
In current scenario, if an individual purchase Bitcoin for buying commodities and
services for private consumption and any profits are attained from its resale, then it will be
taxable. This means that profits will be assessed as capital gain. Appreciation of any in the
capital value would be taxed as per marginal rates. However, there are exception in paying taxes
if Bitcoin is held for 12 months, half tax will only be charged on it. This implies that tax payer is
relieved by paying full tax on the gain garnered. Currently, cryptocurrencies are tagged as a form
of property and liable for Capital Gains Tax (CGT) and to be reported to ATO.
On the other hand, profits earned from capital gain are differently taxed from the above
discussed personal consumption (Phillip, Chan and Peiris, 2018). The treatment of taxation
changes adversely when it is known that investor is going to invest the cryptocurrency for
speculative purpose and as such, any profits or gains produced are taxed. This is done by taxing
the gains as income. In relation to this, if any appreciation in the capital value, it will be required
to be declared by the person as income received from such hike and as a result, the same would
be taxed. Taxes will be applicable as per marginal rates fixed by taxation authority. The nature of
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cryptocurrencies are decentralised and thus, government would face difficulty in carrying out
clarity about the transactions being made. Thus, agencies may not be able to track such
transactions at least for some time but taxpayers would be unveil by the authority.
C) Role of revenue authorities for correct taxation
The Australian government have taken certain steps so that correct taxation may be
attained. In relation to this, ATO provides that cryptocurrencies are difficult to handle for tax
computation because of the major reason as it is of decentralised nature. However, steps are
taken so that correct tax may be ascertained within regions. Increased transparency would be
made in order to handle cryptocurrencies cheating. This can be done effectively by revising anti-
money laundering rule may be applied in effective manner. Moreover, taxpayer ID, name, birth,
address and previous records will be applied by ATO as this has been followed by US
government for carrying out tax evaders in the best possible manner (Holub and Johnson, 2018).
It will bring out clarity regarding the investors as cryptocurrencies are partly used for initiating
crime and as such, anonymity of persons is also maintained. Thus, forming such rule will provide
full clarity to ATO and as a result, correct taxation may be ascertained in the best possible
manner.
Moreover, taxpayers would be explored as they will not be able to hide behind block-
chain and as such, anonymity will not be present. Thus, increased transparency rule would be
beneficial for ATO for extracting identities of persons which are tax evaders. Furthermore,
OCED (Organisation for Economic Cooperation and Development) has initiated anti-tax
avoidance which will have investigations regarding flow of cryptocurrencies between nations
and as a result, team may easily identify whether tax are applicable on such flows. Thus, tax
evasion would be easily reduced with much ease. This will allow not to dodge taxes by the
investors and as such, taxation will be correctly taxed by the regions (Reynolds, Sögner, Wagner
and Wied, 2018). Furthermore, Australian government is planning to launch team in which
personnels will be included of various fields and are expert in such cryptocurrencies so that they
may be able to explore any tax evaders in effective manner.
D) Measures being taken by tax authorities for ensuring taxpayers fulfil their liabilities
There are various measures being taken by the ATO in order to detect taxpayers who are
not fulfilling their liabilities by paying tax on income earned by selling cryptocurrencies. With
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regards to this, ATO is planning to initiate taskforce which will have experts from different fields
such as tax law, finance sector, banking and technology related sectors to make ensure that
taxpayers pay their taxes without any evasion by them. Furthermore, OCED global team is also
initiated which has the role to carry out flow of cryptocurrencies between countries and as such,
tax implications can be made. This help to assess whether tax is applicable on the taxpayers or
not. Thus, this will help taxation authority to overcome evasion problem. Moreover, this
measures will be successful for ATO to carry out tax evasion in the best possible manner
(Allman, 2018).
Furthermore, it is required that key stakeholders are also taken in this aspect and as such,
taxpayers may be easily assessed in a better way. Another measure with regards to the concept is
that taskforce has been directed to follow the money flows in that way so that transactions may
be investigated quite effectually (ATO creates task force to prevent cryptocurrency tax evasion.
2018). Furthermore, it is also required that cryptocurrencies should be presented on tax return
form at the end of financial period in the best possible manner. Money laundering is another
measure to effectively clarify tax evaders who are dodging authority. Thus, ATO has formed
Black Economy Taskforce in effectually identifying investors cheating while paying taxes. Thus,
police and revenue authorities will be able to prevent from money laundering in respect of
cryptocurrencies and as a result, tax evasion would be controlled in a better way.
CONCLUSION
Cryptocurrency help to earn gain by purchasing goods and services as it is digital
currency and investors' enjoy benefit from the same. However, it is required that taxes should be
paid by the individuals who buys such currencies to garner capital gain. Thus, various measures
adopted by ATO will help to effectively carry out any tax evasion in the best possible manner. It
will help authority in exploring investors who cheating while paying taxes.
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REFERENCES
Books and Journals
Allman, K., 2018. Briefs hot topic: The dark side of the Bitcoin.LSJ: Law Society of NSW
Journal. (42). p.28.
Clements, R., 2018. Assessing the Evolution of Cryptocurrency: Demand Factors, Latent Value
and Regulatory Developments.
Holub, M. and Johnson, J., 2018. Bitcoin research across disciplines. The Information
Society. 34(2). pp.114-126.
Phillip, A., Chan, J. and Peiris, S., 2018. A new look at Cryptocurrencies. Economics
Letters. 163. pp.6-9.
Reynolds, J., Sögner, L., Wagner, M. and Wied, D., 2018. Deviations from Triangular Arbitrage
Parity in Foreign Exchange and Bitcoin Markets.
Rubinstein, F. and Vettori, G. G., 2018. Taxation of Investments in Bitcoins and Other Virtual
Currencies: International Trends and the Brazilian Approach.
Wimbush, S., 2018. Bitcoin mining is not uneconomic. Nature.553. p.381.
Online
ATO creates task force to prevent cryptocurrency tax evasion. 2018 [Online] Available Through:
<https://www.finder.com.au/ato-creates-task-force-to-prevent-cryptocurrency-tax-evasion>.
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