How can owners ensure they meet their tax obligations as crypto gains prominence in wallets?
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Crypto is becoming more and more common in investment portfolios. But if you’re not sure how that applies to your own crypto assets, you’re not alone.
Today we take a look at some of the most important tax considerations surrounding crypto: why it matters, your past returns, what the ATO is looking for, and what the future holds for crypto tax law.
Crypto Tax Return – And How To Make It Easier On Yourself
In terms of reporting, crypto is just like any other asset such as stocks. Gains and losses must be reported and those assets are taxed accordingly.
Where things get more complicated, says Danny Talwar, head of tax at Koinly, is with the variety of transactions that can take place within crypto over the course of ownership.
“One of the big challenges we see right now is crypto owners taking an overly simplified approach,” says Talwar. “Often the assumption is that taxes are simply paid based on the initial buying and selling argument.”
But this is not the case – tax liabilities can arise at multiple times during the life of the property.
This is because crypto has a more dynamic range of functions than most other asset classes.
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Once you move beyond buying and selling, there are considerations such as staking, yield farming, and airdrops, just to name a few.
Obviously, keeping track of different transactions can be extremely tricky, especially if you have owned crypto for years and have traded on multiple exchanges and blockchains. So tools like Koinly – a tax calculator designed for crypto – can streamline the process considerably.
“With Koinly you create a clear picture for your accountant,” says Talwar. “You can integrate with over 750 exchanges, wallets and blockchains so you can see what types of transactions have taken place and categorize them accordingly.”
Being able to report more accurately will give you a clearer picture of your profits, your losses, and how to properly submit your returns.
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Crypto and past tax returns – what are your obligations?
If you have previously filed tax returns without accounting for your crypto, the end of this fiscal year is a good opportunity to correct previous mistakes.
Crypto assets are likely to be under close scrutiny this fiscal year (more on that later). So it may be worth reviewing your portfolio and determining if there are past gains and losses that need to be reported.
“The ATO has made it clear in recent years – crypto is taxable and they know what you have done with exchange data matching programs that require exchanges to report transaction information to the ATO,” says Talwar. “We always recommend discussing your specific circumstances with a tax advisor as they can provide advice tailored to your situation.”
This is where tools like Koinly can also be useful. You can track over 10 years of historical crypto and fiat spot prices – this way you can make sure you’re entering costs correctly.
The ATO – and what they are looking for in the crypto landscape
Crypto appears to be on the ATO’s radar again for FY22/23. It’s not really surprising – big events like the collapse of FTX have meant that crypto in general has had a rough year in the press.
This in turn will attract the attention of the government. But that doesn’t mean the ATO is also hostile, Talwar explains.
“There are clear guidelines on the basics of crypto trading and its associated tax treatment,” says Talwar. “Blockchain based technologies are still evolving quite quickly and so it is not always easy for the government to take a stance on the more complex crypto issues like DeFi, but this is evolving and there have been public consultations to address crypto tax issues catch.”
Talwar notes that if you’re not sure where your own portfolio is, it’s best to be up front.
“Working with crypto-savvy tax professionals and having the right support software in place is critical,” he says.
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Koinly is able to track and compile data 750+ integrations, across a huge range of exchanges, wallets and blockchains. So you no longer have to worry about manually searching through spreadsheets or paper files.
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Future developments in crypto regulation – and why this is good news for investors
Regulation is often a controversial topic in the crypto world. But as crypto gains prominence as an asset class, this will have to change.
For Talwar, regulation is not only inevitable, but also positive. The investment carries inherent risks, Talwar points out, but that doesn’t mean all risks are unavoidable. He is encouraged by the signs he sees of government interest.
“I think there is a trend among crypto investors to avoid scrutiny,” he says. “But realistically, if the space expects to be taken seriously by mainstream investors, there should be checks and balances.”
What Talwar hopes is that appropriate nuance is applied.
“I think over the last few years we have really seen crypto change all the time,” says Talwar. “So I want more protection for investors, but I also want to make sure that innovation isn’t stifled. Whatever regulation comes along, we want to make sure there’s an effective balance.”
Check out the Koinly website for more information and helpful crypto tax guides.
This information should not be construed as an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade. Cryptocurrencies are speculative, complex and carry significant risk – they are highly volatile and prone to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Please consider your own circumstances and take your own advice before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and check relevant regulatory agency websites before making a decision. Finder, or the author, may have interests in the cryptocurrencies discussed.
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