Australian cryptocurrency investors could soon be getting a letter in the mail.
The Australian Taxation Office says it has begun collecting “bulk records” from local cryptocurrency exchanges to feed into its feared data-matching technology used to track down tax cheats.
Data provided to the ATO on an ongoing basis will include cryptocurrency purchase and sale information and will make up a “key element” in its compliance program.
In Australia, cryptocurrencies are treated like an asset, meaning every time a cryptocurrency is bought and sold there is potential capital gains tax liability.
“The ATO uses third-party data to improve the integrity of the tax system by identifying taxpayers who fail to disclose their income details correctly,” ATO deputy commissioner Will Day said.
“We also use third-party data to assist taxpayers in meeting their tax obligations through pre-filling of tax returns.
This data will be collected under notice from the cryptocurrency designated service providers on an ongoing basis.”
Mr Day said the ATO had started the process of acquiring complete data sets of customer details and transactions for the 2014-15 to 2017-18 financial years and up to and 31 March 2019.
“Under this cryptocurrency data matching program protocol we will continue to acquire complete data sets for future financial years up to and including the 2019-20 financial year,” he said.
The ATO would not name the exchanges “in order to avoid any possibility of commercial disadvantage”, but will “continue to expand the number of exchanges for which we will acquire data from over time”.
Some of the biggest Australian-based exchanges include Independent Reserve, Coinspot and Coinjar.
It estimates that between 500,000 and one million Australians have invested in cryptocurrencies and blockchain technology, which it describes as an “enabler of existing risks for the ATO”.
“Based on discussions with exchanges we estimate that records relating up to potentially one million individuals will be obtained as part of this program,” Mr Day said.
“However, we need to understand the impact of multiple accounts across different exchanges to confirm the number of users.”
Mr Day said the data was “collected under formal notice compelling DSPs to supply the data”.
Tax on your Bitcoin and cryptos – 2019 – Play by the rules
“Discussions with DSPs is ongoing and generally there are high levels of co-operation and understanding of the importance of participating in the regulatory environment,” he said.
He confirmed the ATO had “ongoing cases involving cryptocurrency” but said it was “difficult to measure the full extent of compliance behaviour”.
“Cryptocurrency activity is not a specific label on the tax return and is included in labels that relate to capital gains tax amongst others, depending on the nature of the activity,” he said.
“However, this data matching program will help the ATO better understand the compliance behaviour in relation to cryptocurrency activity which will inform our strategies, including to support further community education.”
Cryptocurrency has been “used to move funds within the black economy, hide money offshore and is sometimes linked to risks with unexplained wealth and undeclared taxable capital gains”, the ATO said.
The ATO will work with other regulators including the Australian Transaction Reports and Analysis Centre and the Australian Securities and Investments Commission to “ensure that tax law requirements align with a whole-of-system approach”.
“The ATO is also working in a joint international effort as part of the Joint Chiefs of Global Tax Enforcement, aimed at investigating cryptocurrency-related tax evasion and money laundering,” Mr Day said.
Following the data matching people may be contacted by the ATO and given the opportunity to verify the information collected before any compliance action is undertaken.
They will be given at least 28 days to “clarify any information”.
“We want to help taxpayers to get it right and ensure they are paying the correct amount of tax,” Mr Day said.
“Where people find that they have made an error or omission in their tax return they should contact the ATO as soon as possible.
Penalties may be significantly reduced in circumstances where we are contacted prior to an audit.”
A spokeswoman for Independent Reserve said the Sydney-based cryptocurrency exchange would “not be commenting on this”.
“Like all financial services entities in Australia, Independent Reserve is in regular conversations with the ATO and will not be commenting on any ATO media releases,” she said.
Other Australian-based cryptocurrency exchanges have been approached for comment.
Bitcoin, the most popular digital currency, has increased in value by nearly 40 per cent since the start of the year, from $US3747 to $US5225.
It’s still nearly 75 per cent down from its peak of just under $US20,000 at the end of December 2017, when the “crypto mania” rapidly turned into a “cryptocalypse”.