Can the ATO track crypto transactions?

Introduction

With so much talk about decentralization being interlinked with the concept of crypto, many users are under the impression that every single action they make on a blockchain is inaccessible to prying eyes. It’s correct; while your wallet address and any associated transactions are public on the related blockchain, the combination of numbers and letters that make up your individual wallet address cannot be used to identify you, as the individual.

The more that the crypto industry grows, the more the ATO (amongst other tax regulatory bodies) want to know about people’s crypto trading. This is so taxes are paid and laws are complied to by everyone, including crypto users, dependent on the region in which they reside.

So, a question we’ve heard many, many times before is “how can the ATO even track my crypto trading?”. The answer is yes.

Understanding the history of the ATO's treatment of crypto

To understand how the ATO is now aware of individual’s crypto trading activity, let’s walk through the history of the matter.

In August 2014, the ATO declared that crypto assets were not seen as a currency, but rather as property. This meant that any trading of crypto would be subject to Capital Gains Tax (CGT).

Since 2014, the ATO has been working on fleshing out their guidelines pertaining to crypto assets and/or activity and how each should be taxed. As this list of guidelines grew, so did their advice on the tax treatment of new crypto process such as staking, airdrops, NFTs and more.

According to a statement released by the ATO in 2019, their cryptocurrency data-matching program began to be used to scrutinize cryptocurrency transactions and account information from designated service providers. These service providers were (and are) centralized exchanges, who provide the ATO with data items such as names, addresses and phone numbers, as well as transaction details such as amounts, bank account details, transaction dates and asset types.

As a follow up to their cryptocurrency data-matching program, in early 2020, the ATO confirmed it had started sending tax notices to 350,000 Australians who had cryptocurrency transactions. This made it very clear that the data-matching program was working, and the ATO had the ability to identify those participating in crypto trading.

Income tax submissions are required by Australian law, you are supposed to volunteer information about your trades and how much you owe. The ATO has identified cryptocurrency as one problem area where Aussie taxpayers could try to evade taxes and have begun criminal proceedings against tax avoiders.

What if I get audited?

The ATO has started auditing taxpayers specifically to evaluate their crypto trades.

If you come under their microscope, you have to provide some information about each individual transaction, this is where things can get a little trickier if transactions include token to token trades.

You need to provide:

• The date of the transactions
• the value of the cryptocurrency in Australian dollars at the time of the transaction (which can be taken from a reputable online exchange)
• what the transaction was for and who the other party was (even if it’s just their cryptocurrency address).
• receipts of purchase or transfer of cryptocurrency
• exchange records
• records of agent, accountant and legal costs
• digital wallet records and keys
• software costs related to managing your tax affairs

This is where software like Summ (formerly Crypto Tax Calculator) can help, keeping track of all this information, and especially in dollar terms can be a difficult process for 10 transactions let alone 100 or 1000. Summ automates this process for you and goes one step further and calculates the exact taxes you owe on all your trades.

Conclusion

So the short answer to the question, can the ATO track crypto transactions? Is yes. If they don’t, the risk is simply too high that they will eventually find out so it’s better to report the taxes now. If you’re being audited this is also not something to worry about, using a tax calculator can help provide the exact information the ATO needs or if you are especially worried you can hire a crypto accountant to help you navigate the process.