There’s gold in them thar hills, or so say-ith the Australian Taxation Office (ATO) and most other major taxing jurisdictions across the globe. After years of lenient auditing practices with regard to crypto tax collection, officials have suddenly realized that there could be enormous payoffs, ripe for the picking, for only investing a few million in compliance and audit staff. The ATO is just one agency that believes that, after a modest investment of AUD$1 billion, it could reap a windfall of AUD$3 billion, hunting down tax evaders.
How will the ATO go about its business, tracking down unreported tax liabilities? According to a report by Bitcoinerx:
To track down tax evaders, the ATO is working with cryptocurrency exchanges in Australia as well as global exchanges. The agency will analyze the user data gained from the exchanges and tax returns to see if the numbers add up. Cryptocurrency is taxed as a capital asset in Australia, which means any profit gained from selling Bitcoin or other cryptocurrencies is taxable. Losses can be applied to offset any capital gains.
What happens when you are caught in this sprawling net? The ATO has decided not to take a heavy-handed approach at this stage. It will inform taxpayers of its findings and then as for a response within a 28-day period. For those that have not maintained accurate records to support their position, it may be difficult to “get honest” in so short an amount of time.
We suspect that, without a timely response, the next stage would be a compliance collection letter with potential fines, penalties, interest, and specific tax amounts to be paid within “X’ number of days. If you wish to dispute, most authorities require that you pay the taxes first in order to obtain a hearing.
As always, honesty is the best policy. Will Day, Deputy Commissioner of the ATO, per Bitcoinerx, noted:
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.
Australia is not alone in this effort to collect outstanding tax liabilities as a result of cryptocurrency gains in the marketplace. In some respects, they are a bit of a latecomer, having given their market time to mature. Based on the agency’s best estimates they believe that anywhere from 500,000 to one million Australians have invested in cryptocurrencies at one time or another.
In other jurisdictions like the U.S. and the UK, tax officials have been working for well over two years informing the public about how the agency would tax crypto-related transactions, including investments, transfers, mining activities, and even receiving cryptos as compensation for services rendered. Instructive websites, guideline publications, and information “hot-lines” are just a few of the measures that authorities have established to prepare taxpayers for what could be an eventual “judgment day”.
The Internal Revenue Service (IRS) in the U.S. is now taking an aggressive three level stance after tracking down its prey:
- a “soft notice” – notes a discrepancy that requires no action;
- a “not so soft notice” – notes misreporting with possible IRS follow-up; and
- a “hard notice” – alleges non-compliance and IRS will follow up, most likely.
The message is clear. The taxman wants his due, but his figures may not be correct, since exchanges still have a ways to go to report transactions properly. Be prepared.