An interesting play on words. Let us break this down: crypto is a word element and, in this case, a suffix added to another word to give an enhanced meaning. So, crypto comes from a Greek word meaning hidden. Currency, simply is a ‘current’ means of exchange. This now tells us that cryptocurrency is a hidden means of exchange that can be currently used. To its credit, though, the system offers tight security.
As such, this raised alarm bells with banks and the Australian Taxation Office.
Again, let us step back for a moment. Have you ever heard of the word ‘liquidity?’ It’s an economics term. Liquidity refers to an asset that can be easily and quickly converted into a form of acceptable form for the settlement of a transaction at a reasonably predictable value; in other words, selling and buying. Hence, ‘currency’ or money falls into this definition; however, so does a cryptocurrency – so far.
Australia has another economics term – monetary base. Our financial system has a monetary base of ‘currency’ as its most liquid asset. The Reserve Bank of Australia can alter the monetary base and liquidity conditions in the form of interest rates; hence, liquidity (money) measures are out there in the financial markets. All of this means we have controls set in place and backed by the Federal Government and a banking system.
The banks, of course, are a major player with regards to money, i.e. savings, lending, security and more. Cryptocurrency is now a rival competitor to the banks. A cryptocurrency does not need a bank because, with certain types, you own it privately (a decentralized control). The banks view this removal of a need for a bank account as a competitor to their institution and so a reluctance to accept cryptocurrencies in Australia. Admittedly, Australia lags behind Europe and China in the cryptocurrency exchange world. For example, the Bank for International Settlements in Switzerland is called a central bank digital currency (CBDC, or centralized control). This concept now gives rise to government-backed regulation and administration. With such progress, we may now see Australia’s banks go with the flow or be left behind. Keep in mind, to purchase a cryptocurrency, you may pay for it with a credit card. The banks are aware of fluctuations in pricing with the cryptocurrency, and this, in turn, may potentially put their customers into more debt than they anticipated.
Enter the Australian Taxation Office. The Assistant Commissioner, Adam O’Grady, has announced that the ATO will be looking at cryptocurrency transactions more closely. With an increase in market investment (shares, for example), the ATO will now, with its vast resources of data matching, including cryptocurrency exchanges, will be checking that such transactions are recorded on a taxpayer’s tax return.
With all of this in mind, if you are in any doubt on how to handle your tax return with cryptocurrency, or anything else, then come to ERA, where we can relieve you of such a currency conundrum. Contact Era Tax today.