Speaking at a tax-time tip seminar last week, ATO assistant commissioner Adam O’Grady warned crypto investors that his office will be watching all events related to the asset class come tax time.

“It is really important for all capital assets; we will be looking to ensure that the people have reported the capital gains events — and this is for both gains and losses,” Mr O’Grady said.

The warning comes as the Tax Office changes from a good-faith to a hard-line tax approach, with a surge of investors’ interest in the asset class piquing the ATO’s interest.

“We get information and data on property sales from all the state and territory revenue offices,” he said. “We have very good shares data as well and it’s available as a pre-filled service [where] you can download different shares transactions for your clients.

“We are also getting cryptocurrency information from Australian scientists as well. So, we’ll be using that information to look at returns as they come in.

“And when people have had significant capital gains events according to that data, if it’s not reported in the return, we’ll be looking to hold those returns and again enquire with you and with your clients as to where those transactions are.”

Mr O’Grady warned that the Tax Office has allocated substantial resources into cryptocurrency data matching and the promotion of taxpayer obligations for those buying, selling and holding crypto assets.

Crackdown months in the making

The ATO’s good-faith approach to crypto asset tax obligations appears to have come to an end, with H&R Block director of tax communications Mark Chapman warning investors in February to pay attention to the “tax side of things” when it comes to crypto investments.

“I think the first thing to say is that the ATO has, within the last year or so, started gathering data from cryptocurrency exchanges, the actual providers,” he said. “As a result of that, I think the ATO now has a much better understanding of who’s involved in this market.”

While the ATO has been expected to ramp up auditing around cryptocurrencies for the past three years, and hasn’t, its “light touch” isn’t expected to last much longer.

The ATO first showed signs of cracking down on compliance in March last year, when an undisclosed number of letters were sent to taxpayers, warning them to come clean with their capital gains or losses.

“Quite a few clients and non-clients have received these letters from the ATO, flagging that there’s a mismatch in their data,” Mr Chapman said. “And I think that’s prompting a lot of people to come in to see their tax agent, or maybe to see a tax agent for the first time if they’ve been doing it themselves.

What should crypto investors do?

Much like for any other asset, the tax man is urging investors to record all capital gain events whether they are a gain or a loss.

“One of the emerging themes we are seeing in the capital gains space is losses not being reported through the tax return. It’s really important to still report those losses through the return,” he said.

“Not only does it avoid us having to follow up as to why you haven’t done that for the year, and while it may not be a financial impact to you, or the clients this year, because those losses are quarantined. It applies for future years.”