The tax office is set to unleash its data-matching capabilities to crackdown on cryptocurrency traders avoiding tax.
The Australian Taxation Office revealed on Tuesday that it will be requiring local cryptocurrency designated service providers to hand over bulk records, which it will then data-match with individuals’ tax returns to “ensure people trading in cryptocurrency are paying the right amount of tax”.
The data the ATO will be collecting includes cryptocurrency purchase and sale information, and it will make up a “key element” in the ATO’s compliance program.
“The ATO uses third-party data to improve the integrity of the tax system by identifying taxpayers who fail to disclose their income details correctly. We also use third-party data to assist taxpayers in meeting their tax obligations through pre-filing of tax returns,” ATO deputy commissioner Will Day said in a statement.
“We want to help taxpayers to get it right and ensure they are paying the correct amount of tax. 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.”
According to the ATO, there are between 500,000 and 1 million Australians that have invested in cryptocurrencies.
If the data-matching finds a discrepancy, the individual may be contacted by the ATO to verify the information regarding the cryptocurrency. They will be given at least 28 days to clarify the information that was provided by the designated service provider.
Australian financial intelligence agency AUSTRAC last year implemented new laws requiring digital currency exchange providers to register with the organisation and meet the same compliance and reporting obligations as banks.
The federal government has earlier legislated to align the GST treatment of cryptocurrency and prevent it from being double-taxed, with the changes coming into effect in July 2017.
The ATO signalled the crackdown in January last year, when it began “external consultations” on how to ensure that cryptocurrency investors and traders are paying the right amount of tax. The organisation held workshops the next month with key advisers, including tax experts, lawyers and specialists in tech, banking and finance.
The tax office said it sees cryptocurrency as an “enabler of existing risks”.
“Cryptocurrency has been used to move funds within the black economy, hide money offshore, and is sometimes linked to risks with unexplained wealth and undeclared taxable capital gains,” it said.
It is currently working with other Australian regulators including AUSTRAC and ASIC to further crackdown on its misuses, along with the Joint Chiefs of Global Tax Enforcement to investigate crypto-related tax evasion and money laundering.