Darknet Market Brings Billions In Crypto World, Finds Study The darknet market has set a new revenue record in 2021, bringing in a total revenue of $2.1 billion in cryptocurrency. Here is all you need to know about the darknet market and its role in crypto.
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ATO flags cryptocurrency crackdown amid evasion concerns
Tax authorities will tighten scrutiny of cryptocurrencies in a bid to ensure users are accurately reporting gains and identify whether it is being used as an investment or for business purposes.
The Australian Taxation Office will also target users’ record-keeping to ensure expenses claimed for using cryptocurrencies, such as software, commission or brokerage costs, are accurate, according to government sources.
The clampdown comes amid regulatory concerns that many taxpayers believe cryptocurrency operates in an anonymous digital world, or that gains are tax-free, or only taxable when holdings are cashed back into Australian dollars.
The ATO estimates more than 600,000 taxpayers have invested in cryptocurrency in recent years, with big increases in trading, despite the value of digital assets held in self-managed super funds falling by about $5 million to $227 million for the 12 months to December 31.
Many investors flooded into cryptocurrencies amid hype about huge returns, despite it being a poorly regulated, highly volatile, immature market that’s vulnerable to hackers and malware.
For example, the price of bitcoin has fallen about 40 per cent to $55,000 since November, while Ethereum has plunged about 44 per cent to $3500.
An ASX-listed BetaShares exchange-traded fund named CRYP has more than halved in value since November, to about $5. It invests in up to 50 crypto-exposed securities such as Coinbase, Riot Blockchain and MicroStrategy.
During the same period, another ETF named DIGA, which tracks the prices of a basket of cryptocurrency mining and infrastructure companies, has slumped from $7 to about $2.50.
Tax obligations
Cryptocurrencies are treated like other investments, such as shares, with investors who buy or sell for fiat currency, or exchange one cryptocurrency for another, being subject to capital gains, or losses, which must be reported.
Capital gains tax will apply when it is sold as an investment, warns Mark Chapman, a tax director of H&R Block.
That is calculated on the profit between the amount paid and proceeds received, which can be discounted by 50 per cent if held for more than 12 months.
Disposal happens when selling cryptocurrency for Australian dollars; selling one currency for another, gifting, trading, or using it to pay for goods or services.
“Be careful, though, CGT is not always relevant,” warns Chapman.
“If you are acquiring the cryptocurrency to trade you might be deemed to be running a business, in which case you will pay income tax on the business profits. This is less advantageous than CGT because the 50 per cent CGT discount does not apply.”
Those that regularly buy and sell cryptocurrency could be regarded as traders, rather than investors, which might also attract income tax.
“It can be a fine line between being an investor and trader,” Chapman says.
Generally, you will be considered a trader if you are turning over cryptocurrency every few days chasing profits, have many transactions, and are running a business-like structure with business plans, a registered business name and Australian business number.”
In 2019, the ATO introduced data-matching from cryptocurrency service providers to individuals’ tax returns. This has been expanded to capture data up to and including this financial year.
The ATO can track cryptocurrency where it interacts with the real world through information from banks, financial institutions and cryptocurrency online exchanges to follow the money back to the taxpayer.
Crypto traders are being warned that tax authorities may also review tax returns before issuing a notice of assessment and request they amend their return to include capital gains from transactions.
“If what you disclose to the ATO on your tax return does not match the data the ATO has received from designated service providers, you can expect at the very least a ‘please explain’ letter,” says Chapman.
“That makes it much harder to hide behind the anonymity that previously was one of the hallmarks of cryptocurrency.”
Other tax specialists urge traders to keep accurate records for up to five years of cryptocurrency gains and losses, and the value in dollars at the time of transactions, alongside what they were used for and who the party was, even if it was a wallet address.
Businesses or sole traders that are paid cryptocurrency for goods or services will have the payments taxed as income based on its value in Australian dollars.
The ATO recommends investors keep records of:
Unregulated market
Chris Brycki, chief executive of Stockspot, an online investment adviser and fund manager, believes the ATO will also target investors correctly calculating costs such as brokerage fees, transfer and platform costs, borrowing expenses, interest on loans, and legal fees.
He adds the ATO will look for receipts and details of the coin type, purchase price, date and time of transactions in Australian dollars, and what was paid in commissions or brokerage fees.
“Unlike other markets, such as gold miners, the crypto market is not yet mature and there are only a limited number of publicly traded companies,” says Brycki.
“Many of the larger cryptocurrency exchanges are still privately owned businesses, while the listed companies are relatively small.”
Those preparing their tax returns for cryptocurrency gains or losses should consider:
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