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Tax Treatment of Cryptocurrency Exchanges in Australia
Crypto currency exchanges are critical to the crypto market ecosystem — but how are they taxed in Australia?
It’s no secret that cryptocurrency tax is complex. The ATO is constantly revising and updating the tax treatment of cryptocurrencies — but what about the platforms they are traded on? Centralized cryptocurrency exchanges are currently the foundation of the cryptocurrency market, but are subject to very little scrutiny from the cryptocurrency community when it comes to taxation.
In this article, we’ll take a look at the manner in which cryptocurrency exchanges are taxed in Australia, how the ATO tracks transactions on crypto exchanges, and what criteria the ATO uses to recognize reliable pricing data.
Cryptocurrency Exchanges and Tax
The Global Context
Cryptocurrency exchanges have recently been subject to intense scrutiny from regulatory and tax authorities around the world. Notably, the South Korean government announced in January 2018 that cryptocurrency exchanges based within the country would be subject to a 22 percent corporate income tax.
In October 2018, Department of Federal Revenue of Brazil released a statement instructing all crypto exchanges operating within the country would be required to publish reports on a monthly basis. In the United States, crypto exchanges are required to pay tax on net earnings — the total revenue for the financial year, less tax-deductible expenses.
US law for cryptocurrency exchanges is complex, and involves a spectrum of forms that focus on brokerage transactions, dividends, interest, and third-party payment settlement entities. As US tax varies by state, exchanges based in the US must also consider how the states in which they are registered impact state-level income taxes.
The Australian Situation
To date, the ATO has not yet published any definitive information regarding the taxation of crypto currency exchanges. Operating a cryptocurrency exchange in Australia is explicitly legal, and requires that businesses operating exchange platforms register themselves with AUSTRAC.
Tax obligations for cryptocurrency exchange platforms in Australia are likely to resemble tax structures for traditional share and currency exchanges, with new crypto trading business obligations taken into account.
How the ATO Tracks Transactions
The Australian Taxation Office has recently launched in intensive data-matching program in order to track crypto traders and ensure that they are taxed accurately. In a joint venture involving both the Securities and Investments Commission and the Australian Transaction Reports and Analysis Centre, the ATO will be using third-party data collected form cryptocurrency exchanges to identify the 500,000 to 1,000,000 Australian crypto traders currently active on crypto exchanges.
While the ATO has been relatively quiet regarding the specific techniques used to match transactions to users, it’s likely that the data-matching program will incorporate elements of chain analysis, such as those performed by blockchain intelligence platform Chainalysis. The ATO has also revealed that it has access to personal data such as tax file numbers, and addresses as well as birth date name and transaction records from AUSTRAC-registered exchanges.
Pricing Data & Reputable Online Exchanges
The ATO has published extensive documentation regarding the taxation of cryptocurrency trades, which advises that individuals that engage in crypto trading “keep records of the date of transactions, the amount in Australian dollars which can be taken from a reputable online exchange.”
The ATO does not specifically define any reputable online exchanges, but it’s reasonable to assume that reliable sources such as the Chicago Mercantile Exchange Bitcoin Reference Rate is considered to be a “reputable” exchange.
The CME CF Bitcoin Reference Rate is a standardized reference rate that has been active since 2016, and collects pricing data from large-scale exchanges such as Bitstamp, Coinbase, itBit and Kraken.
To keep in the loop about Cryptocurrency Exchanges and Tax updates, get in touch with Fullstack’s crypto accountants today.
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Stuart Reynolds is the founder of Fullstack Advisory, an award-winning accounting firm for businesses leading the future. He is a 3rd generation accountant who specialises in tech companies, agencies and entrepreneurs.