In light of the ATO’s current position that income from cryptocurrency sales will generally be taxed under capital gains tax (CGT) provisions and increased scrutiny on cryptocurrency transactions, taxpayers should ensure they keep accurate records of cryptocurrency transactions.
Its slightly ironic given the nature of most cryptocurrencies, however the CGT record-keeping rules require taxpayers keep all records that can be reasonably expected to be relevant in calculating whether the taxpayer has made a capital gain or loss from a CGT event.
The Commissioner of Federal Taxation (Commissioner) has stated that the following records in relation to cryptocurrency transactions are required:
- the date of the transactions;
- the value of the cryptocurrency in Australian dollars at the time of the transaction (which can be taken from a reputable online exchange); and
- what the transaction was for and who the other party was (even if it’s just their cryptocurrency address).
Many exchanges and brokers will keep an accessible record of the transactions you have made, including the date and how much was transferred. This can then be reconciled with the Australian Dollar at the time.
However, some of these requirements, such as noting the receiving party’s address, may be onerous. Therefore, practical issues arise in relation to the CGT record-keeping requirements.
Fortunately, the Commissioner has consulted with industry experts and relevant stakeholders on this issue. Specifically the Commissioner requested input on the following questions:
- Are there any practical issues that arise in relation to the CGT record-keeping rules, so far as cryptocurrency transactions are concerned?
- Are there any practical issues in relation to complying with the taxation obligations that arise for each cryptocurrency to cryptocurrency transaction?
- Are there any specific factors that you think we should take into account when developing further public advice and guidance about CGT record-keeping for cryptocurrency and cryptocurrency to cryptocurrency transactions?
Following the consultation process the Commissioner advised that the following records should be kept:
- receipts of purchases or transfers of cryptocurrency;
- exchange records;
- records of agent, accountant and legal costs;
- digital wallet records and keys; and
- software costs related to managing your tax affairs.
Taxpayers looking to invest in cryptocurrency should be mindful of these specific records in order to avoid potential issues, including the imposition of penalties, in the future. This may require keeping offline records secure which outline all disposals, including exchanges between cryptocurrencies.
For those who have recently sold cryptocurrency it is recommended that records if not on hand, are tracked down. Where taxpayers find themselves with insufficient records, advice should be sought to ensure that the most appropriate tax treatment is taken, and potential penalties are minimised.
For more information on cryptocurrency transactions and taxation or for general business law advice, please contact:
This article was written with the assistance of Alex Gulli, Graduate Lawyer
Principal - Harwood Andrews
Paul is a Principal at Harwood Andrews. He brings a commercial approach to the law from a broad set of experiences as a business owner, private legal advisor and in-house counsel, and having worked with management teams over many years. Paul is valued for distilling issues down to what is really important and being prepared to make a risk call based on judgement and experience.
Paul’s key areas of practice include:
- commercial contracts and advice;
- business and share capital structuring;
- sale and purchase of business;
- procurement and service arrangements;
- technology, intellectual property, data protection and start-ups;
- consumer law;
- corporate advisory, including , company secretarial and directors' duties, shareholder relations; and
- capital raising and financing requirements
Paul also manages Harwood Andrews’ corporate counsel advisory service, built on a decade of experience as a client and managing legal functions within one of Australia’s biggest corporations.
Paul believes that evolving how legal services are delivered can be a win-win for lawyers and their clients, particularly how on how technology impacts the legal profession, legal advice and the delivery of efficient legal services.
Paul’s professional commitments include:
- Member of the Law Institute of Victoria
- Member of the Law Institute of Victoria’s Technology and the Law Committee