Some 300,000 taxpayers with cryptocurrency assets are shortly due to receive a letter from the Australian Taxation Office (ATO) informing them of their tax obligations, with an additional 100,000 Aussies set to receive a notice to review their previously lodged returns.

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According to the ATO, there is a misconception that cryptocurrency gains are tax-free or only taxable when the holdings are cashed back into Australian dollars.

As such, the ATO is prompting Aussies who trade in crypto as they lodge their 2021 tax return to report their cryptocurrency capital gains or losses. To ensure they’re doing the right thing, the ATO is matching data from cryptocurrency-designated service providers to individuals’ tax returns.

Assistant commissioner Tim Loh explained that gains from cryptocurrency are similar to gains from other investments, such as shares. Generally, as an investor, if you buy, sell, swap for fiat currency, or exchange one cryptocurrency for another, it will be subject to capital gains tax (CGT) and must be reported.

“We are alarmed that some taxpayers think that the anonymity of cryptocurrencies provides a licence to ignore their tax obligations,” Mr Loh said.

“While it appears that cryptocurrency operates in an anonymous digital world, we closely track where it interacts with the real world through data from banks, financial institutions and cryptocurrency online exchanges to follow the money back to the taxpayer.”

Last year, the ATO directly contacted around 100,000 taxpayers who had traded in cryptocurrency and prompted 140,000 taxpayers at lodgement.

“We know cryptocurrencies can be complicated. That’s why our focus is on helping people get it right,” Mr Loh said.

“The best tip to nail your cryptocurrency gains and losses is to keep accurate records, including dates of transactions, the value in Australian dollars at the time of the transactions, what the transactions were for, and who the other party was, even if it’s just their wallet address.”

He noted that businesses or sole traders that are paid in cryptocurrency for goods or services will have these payments taxed as income based on the value of the cryptocurrency in Australian dollars.

For those who have realised they’ve made a mistake in previous returns, Mr Loh advised that the ATO will be lenient.

“If you realise you’ve made a mistake and correct your return, we will significantly reduce penalties. However, failing to report on crypto assets and not taking action when reminded will prompt penalties and potentially an audit,” he said.

The ATO has created a cryptocurrency fact sheet with tips and information on how capital gains tax applies to cryptocurrency.