The ATO’s ambitious data matching plan
The ATO recently announced its big plans for data matching of crypto transactions undertaken by Australian taxpayers. Its intention is to wrangle data from the hands of many Australian crypto designated service providers (DSPs) as part of a data matching program to ensure people trading in crypto are paying the right amount of tax.
What many investors don’t realise though, is that the ATO’s reach extends far beyond domestic providers. The next likely step in this tax compliance endeavour is for the ATO to leverage the current data-sharing arrangements in place with more than 100 countries and expand its pool of data sources. The most at-risk taxpayers will be those who have declared nothing, or those who declared significantly less than the ATO’s expectation.
Since the announcement, many of our crypto trading clients have asked how the ATO intends to achieve its ambitious plans. The answer lies in the 2019-2020 Budget, where it outlines that the ATO is due to receive $1 billion in funding over the next four years to extend the operation of its Tax Avoidance Taskforce. BDO estimates that the Government will realise a $3 billion return on the investment, with $3 collected for every $1 spent.
Eyes on crypto
The ATO estimates that somewhere between 500,000 to 1,000,000 Australians, that’s up to 4% of the nation’s population, are invested in crypto and, therefore, likely to be impacted by this data matching program. Figures like this suggest that, in the eyes of the ATO, crypto adoption in Australia is here.
According to ATO representatives, the plan is to:
- Obtain data from Australian crypto designated service providers – starting with data from the larger well-established providers, before moving on to smaller providers later in the year
- Extend the ATO’s reach to foreign digital service providers – likely from any or all of the countries that Australia currently has a data sharing arrangement with.
The data obtained from these sources, particularly digital exchanges, will be used to identify the buyers and sellers of crypto assets and quantify the related transactions.
The data to be collected may contain all or a selection of the fields listed below for the 2014-15 through 2019-20 financial years:
Digital currency owner details
- Australian Business Number
- Date of birth
- Contact phone numbers (land line, mobile)
- Social media accounts (e.g. Facebook, Twitter, Telegram, Reddit, Whirlpool).
Account and transaction details
- Status of account (e.g. open, closed, suspended, lost)
- Linked bank accounts
- Wallet address associated with the account
- Lost or stolen crypto amounts linked to accounts
- Unique identifier (user ID)
- Transaction date
- Transaction time
- Type of crypto
- Amount (in fiat and crypto)
- Type of transfer
- Transfer description
- Total account balance.
At the moment, the ATO is seeking to retain the data for a period of seven years.
It is going to be relatively easy for the ATO to obtain data from the Australian DSPs, with many already openly acknowledging their legal obligations to share customer information with government agencies. The ATO will also be working with other regulators, in particular the Australian Transaction Reports and Analysis Centre (AUSTRAC) and the Australian Securities and Investments Commission (ASIC), to ensure tax law requirements align with a whole of system approach.
As the world becomes increasingly globalised and cross-border activities become the norm, tax administrations of different countries will work together more and more to ensure taxpayers pay the right amount of tax to the right jurisdiction.
The ATO has a number of approaches to obtaining data from crypto DSPs on a global scale, as outlined in the following pieces of legislation:
- Automatic Exchange of Information (AEOI) regimes concerning the automatic exchange of financial account information with foreign jurisdictions
- CRS Multilateral Competent Authority Agreement (MCAA), which is based on Article 6 of the Multilateral Convention on Mutual Administrative Assistance in Tax Matters. It is a legal instrument that established the exchange relationships with, what is currently, 105 countries
- The list of information exchange countries listed in subregulation 34 of the Taxation Administration Regulations 2017 has been recently updated to reflect the new effective exchange of information (EOI) arrangements with 54 additional countries. The update took effect from 1 January 2019.
"The digital economy, in some ways makes it easier to move things around the world, but you also leave digital footprints everywhere and so it is possible to track people as they move things around the world." – Jeremy Hirschhorn, Second Commissioner at the ATO.
ATO’s algorithmic hit squad
The ATO will produce its own estimates for your taxable income based on your crypto activity and will compare this to the actual figures reported on your tax return. In particular, they will be matching your capital gains or business trading income against the data received from DSPs.
If you complete your tax correctly and everything is declared on your tax return, the ATO should be content with your crypto tax affairs. However, if the math doesn’t add up, the ATO promises to contact you.
Legitimate users of crypto for personal use are also at risk. At first glance, disposal events for personal use will still appear as taxable events to the ATO and may be a red flag. You need to be ready for this eventuality and get your records in order. Unfortunately, because of the capital asset nature of digital currencies, every purchase you make is a possible and likely taxable event. That means you need to keep records of all coffees, meals, flights and other services you purchased directly with digital currencies to be able to prove your personal use.
It’s not too late
If the ATO detects a discrepancy after it performs the data matching, you will be contacted - usually by letter or phone. The ATO will give you 28 days to respond before administrative action is taken. If you are contacted by the ATO, it is a good idea to engage with a tax professional who specialises in crypto to establish a tax strategy tailored to your particular case.
If your crypto activities have not been accounted at all, now is the best time to get things in order.
At BDO, our crypto specialist, Maryna Kovalenko, helps clients with their crypto tax compliance, including data engineering historical information, so you can be certain about your situation despite any difficulty around your case.
If you require support, please contact Maryna or your local BDO Tax adviser.