ATO cracks down on crypto assets this tax time

This article was current at the time of publication.

This year promises to be another busy tax season, so it’s prudent to be across the primary focus areas of the Australian Taxation Office (ATO).

These include capital gains from crypto assets, property, and shares, record keeping, work-related expenses, and rental property income and deductions.

Crypto and other investments

Market volatility has seen the prices of many cryptocurrencies and shares pull back from the record highs of 2021-22.

That said, many investors have locked in substantial capital gains by disposing of assets during the financial year. Others have booked capital losses.

The ATO expects a surge in capital gains and losses on crypto assets, including non-fungible tokens.

“Through our data collection processes, we know many Aussies are buying, selling, or exchanging digital coins and assets, so it’s important people understand what this means for their tax obligations,” the ATO says.

CPA Australia’s Senior Manager Tax Policy, Elinor Kasapidis, says practitioners have a key role in the process.

“As one in five Australians are estimated to hold crypto assets, it’s important to ask clients whether they have digital or crypto assets, whether they’ve disposed of them, or even if they’ve used them to buy something which, for example, can be a taxable event,” Kasapidis says.

“It’s about making sure clients have the information they need to calculate any capital gains tax [CGT] and ensuring taxpayers understand when they’re going to have to pay tax, which can be more often than they think.”

According to Kasapidis, exchanging one digital currency for another can be taxable. There are also rules around donating crypto assets.

She says practitioners can use online services to see where trading in investment assets has been data matched by the ATO.

“Certainly, if you see something that’s been data matched that the client is not talking about, then you need to ask.”

The ATO has also outlined rules around claiming a deduction from the donation of crypto assets to organisations that have the status of being a deductible gift recipient.

“Because crypto assets are property, if your clients donate crypto assets there may be CGT consequences,” the ATO says.

“Donating crypto assets is a CGT event, similar to the disposal of any other asset.”

Record keeping and expenses

The ATO has again emphasised the importance of good tax record keeping for income earned in 2021-22 and for expense deductions.

It says this will guarantee a smoother tax time but warns it will take “firm action” against individuals who falsify records or can’t substantiate deduction claims.

The regulator is also focusing on work-related expenses, particularly deductions claimed by people working from home. It expects reduced car, clothing, and other deductions such as parking and tolls.

Individuals can choose from the government’s shortcut (all-inclusive), fixed rate and actual cost methods, provided they meet eligibility and record keeping requirements.

“The ATO’s been cracking down on work-related expenses for a few years,” Kasapidis says. 

“It’s about making sure practitioners take reasonable care, so make sure the client has the required records and educate them about what they need to do.

“Also, let them know that the shortcut for working from home expenses will not be available from 1 July.”

The ATO notes the importance of taxpayers understanding the rules for claiming different types of work-related expenses.

“While some make genuine mistakes, we do see people trying to gain an unfair advantage by claiming incorrect or false expenses,” it says. 

“A mistake we often see in tax returns is people claiming expenses twice.”

Rental income and deductions

The ATO is targeting rental income and deductions to ensure property owners declare all income earned, including from short-term rental arrangements, insurance payouts, and money retained from rental bonds.

It is encouraging rental property owners to use a registered tax agent to help with their tax affairs.

“If we do notice a discrepancy, it may delay the processing of your refund as we may contact you or your registered tax agent to correct your return,” the ATO says.

“We can also ask for supporting documentation for any claim you make after your notice of assessment issues.”

Kasapidis points out that the ATO has highlighted how interest expense claims on investments –  including property – can be especially difficult.

“Make sure deductions are properly claimed and calculated and that you have the [necessary] records, particularly if there’s a redraw or offset account,” she advises.

In summary, Kasapidis says now is a good time for all practitioners to get their client lists ready and to clean them up to avoid becoming overburdened during the tax season.