Did you know that if you are investing, trading, staking, receiving airdrops, holding, or trading Non-Fungible Tokens (“NFTs”), playing to earn, or mining cryptocurrency you have record keeping requirements that must be met? The ATO imposes record keeping requirements to have information relating to your activities necessary to calculate the impending tax implications when you dispose, sell, swap, or even gift your cryptocurrency holdings.
The ATO prescribes record keeping of your cryptocurrency activities to include the following:
- The date of your transactions
- The value of the cryptocurrency coin, or token, in Australian dollars
- The purpose of the transaction
- Details of any third parties
Keeping adequate records of the abovementioned as required by the ATO can be a tiresome task and almost impossible to do so depending on the volume of your activities.
Luckily for you engaged with cryptocurrency activities, the power of blockchain will prevail in combating strict requirements. With blockchain technology, each one of your transactions is stored and is waiting to be accessed as required to collate your records.
Coin tracking software is currently the most feasible and easy-to-use method of collating your records from multiple sources. If you are operating on multiple exchanges (e.g Binance, Kucoin, Coinspot, and Swyftx) and multiple wallets (e.g Metamask, Trust Wallet, Exodus, Trezor) coin tracking software can amalgamate all your activity and populate summary capital gains, income, transaction fees and other useful reports required to complete your annual Income tax Return.
Coin tracking software, such as Koinly.io can be employed in your arsenal of apps to combat strict record-keeping requirements. Solid coin tracking software can save you hours of time in collating your records. Most coin-tracking software also allows you to monitor and track your activity. This has the added benefit of being a portfolio management tool – allowing you to track your profitability. Depending on how well your coin tracking software is maintained you may also be able to calculate approximate tax liabilities.
Tips and Tricks
A very useful and simple tip that won’t cost you anything, but a bit of time is keeping a record of all your exchanges, and hot and cold storage wallets that you use, or have used.
A simple MS Word or MS Excel document will suffice, ensure that you list the following:
Each exchange account that you have used
Each cold and hot storage wallet that you have used
The ownership percentage of the assets contained within the account/s and wallet/s
A short description of what each account and wallet is used for
In completing this document, you will now have a central database where all your data is stored. From purchases, sells, swaps, transfers, deposits, and withdrawals, each transaction will be included within the accounts and wallets listed. Be sure to include them all.
Creating this document is paramount in ensuring that you will be able to access the data to then produce meaningful reports that will assist you track the success of your investing and trading activities.
Application Programming Interface (“API”) keys are a convenient way to feed the data from exchanges to third-party software such as a reputable coin tracking software. Generating API keys from exchanges is easy to do and will create a live link to your coin-tracking software, meaning any new trades, transactions, deposits, or withdrawals will be captured within the software without any input needed from you. This will save you time and create welcoming convenience in preparing your cryptocurrency tax affairs.
API keys are also a useful tool which we use at Fullstack Advisory. It is one of the many ways we conduct work on your file without pesty constant queries or information requests from your accountant.
It is important to check with your respective exchange to see how to generate an API key and to understand the security considerations. Sharing your data via an API key should only ever be done with ‘Read-only access’ as API keys can be generated by you allowing trades to be executed outside of the exchange – this is exactly how automated trading bots conduct trades for you while you sleep.
Exchange Trading Reports
A fail-safe, tried, and proven method of collating your cryptocurrency activities is by way of historical trading reports. These reports can be extracted from the exchange you are using and should be done so on a regular basis. Periodic reports such as monthly, quarterly, or annually is vital to ensuring your cryptocurrency activities can be accurately reported. It is worth noting, some exchanges impose restrictions to how often users can extract reports – this provides a challenge when extracting historical reports requiring the extraction of multiple periods.
Be careful – each exchange is slightly different where the format of the reports may be different. The information contained on the report may also differ and therefore may require the extraction of multiple reports (e.g deposit and withdrawal reports and trading reports).
To access transaction data from your wallets, you will be required to provide the wallet address for all wallets you have used.
Producing Annual Crypto Tax Reports
Upon collating all the data from your exchange accounts and wallets, our cryptocurrency specialists will be able to produce annual tax reports specific to your cryptocurrency affairs. Fullstack Advisory produces crypto reports which satisfy all record-keeping requirements imposed by the ATO and allow for complex tax calculations to be undertaken required each year for reporting in your Income Tax Return.
A Tax Professional Perspective
Collating your records come tax time can be an arduous task indeed. Ensuring your records are keep organize will save you a lot of grief when engaging with a cryptocurrency accountant to start organizing the preparation and lodgment of your Income Tax Return.
At Fullstack Advisory, we request all cryptocurrency clients to advise all exchange accounts and wallets used, therefore, completing the abovementioned tips will save you enormous amounts of time and effort in providing the information we require. Remember that central database that you have now completed? This can simply be forwarded to your respective tax manager and used to commence the collection of your data.
Our trusted and industry-leading cryptocurrency bookkeepers will use this database, as well as your API keys, and or trading reports and wallet addresses to extract your data and produce meaningful information about your activities.
Cryptocurrency tax accounting
Once your cryptocurrency annual tax reports have been finalized and approved by you, our cryptocurrency-specialized tax accountants will then commence the preparation of your Income Tax Return.
Our accounting team will be using the information from your reports to conduct the tax calculations required to bring your cryptocurrency affairs to account within the Return. This may include, capital gains tax calculations, business schedules pertaining to your trading activities, and cryptocurrency mining schedules pertaining to your mining activities.
Still unsure of your crypto record-keeping requirements? Fullstack has a team of seasoned crypto accountants and bookkeepers to help support you with your crypto tax returns. We offer record-keeping solutions, cryptocurrency tax advice and more. Schedule an appointment here to discuss your matter and how we can take it further.