Published on the 08/05/2019 | Written by Heather Wright
But can the transactions really be unravelled?…
The Australian Taxation Office has sent out a warning to those using cryptocurrency to avoid taxes, warning that those making ‘errors or omissions’ in their tax returns should fess up now to avoid penalties.
The warning comes as the ATO tries to crack down on digital currency tax evaders, with investors not declaring their crypto assets likely to be receiving a ‘please explain’ notice.
The ATO says it’s using data matching, utilising bulk records it has collected from local cryptocurrency designated service providers. It didn’t name the exchanges it has collected data from already, but says it will continue to expand the number of DSPs it’s acquiring data from over time.
“Cryptocurrency and blockchain technology are an enabler of existing risks for the ATO.”
Exchanges will be required to provide the data, including purchase and sales information, under legal notice on an ongoing basis.
The data will be matched with income details reported by taxpayers in a large number crunching exercise ‘to ensure people are meeting their tax obligations’. If a discrepancy is found, the taxpayer will be contacted to verify the information regarding the cryptocurrency.
While there’s plenty of legitimate use of cryptocurrency, the digital currency has long been used to avoid taxes and for criminal means.
EU law enforcement agency Europol has repeatedly highlighted the increasing abuse by criminals of cryptocurrencies for funding nefarious activities. In 2015 the organisation said Bitcoin was used in more than 40 percent of illicit transactions in the European Union. Its 2018 report noted that trend continues, with money launderers also evolving to use crypto in their operations.
The ATO says there are an estimated 500,000 to one million Australians who have invested in crypto-assets. It says cryptocurrency and blockchain technology are ‘an enabler of existing risks for the ATO’.
“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,” the ATO says.
While the move is likely to catch mom and pop investors it’s questionable how much impact there will be for those deliberately using crypto to avoid tax or for nefarious means.
No doubt with that in mind, the ATO is working with other regulators, including the Australian Transaction Reports and Analysis Centre (AUSTRAC) and ASIC in the fight against the black economy. It’s also part of the Joint Chiefs of Global Tax Enforcement investigating cryptocurrency related tax evasion and money laundering.
While crypto was the glamour girl of 2017, with the market booming and investors making big gains, those gains have tapered off, with the value of big player Bitcoin, falling in recent months.
The crackdown comes as scams demanding payment through Bitcoin, continue to rise – with one scam impersonating the ATO garnering AU$733,000 in Bitcoin.
A CipherTrace report earlier this year also highlighted cryptocurrencies allure for criminals, showing hackers stole US$1.7 billion worth of the digital currencies in 2018.