The Australian Taxation Office (ATO) has estimated that there are over 600,000 taxpayers that have invested in digital assets in recent years.
It said its own data analysis shows a dramatic increase in trading since the beginning of 2020.
"The innovative and complex nature of cryptocurrencies can lead to a genuine lack of awareness of the tax obligations associated with these activities," the ATO said. "Also, the pseudonymous nature of cryptocurrencies may make it attractive to those seeking to avoid their taxation obligations."
The remarks were made by the ATO in a submission [PDF] to the Australia as a Technology and Financial Centre inquiry currently underway.
It explained that the ATO introduced a data-matching program in April 2019 in a bid to regulate the tax consequences of cryptocurrency transactions. Under the program, cryptocurrency transactions have been collected from Australian based cryptocurrency exchanges for the 2014-15 to 2019-20 financial years and will be expanded to capture data up to and including 2022-23.
The ATO said the cryptocurrency data-matching program allows it to identify and address multiple taxation risks, such as capital gains tax, omitted or incorrect reporting of income, fringe benefits tax, and goods and services tax.
"The data collected under this program will enable us to undertake a range of activities to support correct reporting of cryptocurrency transactions," it added.
The ATO said the data would be used to identify and inform cryptocurrency consumers of their taxation obligations as part of information and education campaigns, provide tailored messages in online services to prompt taxpayers to check they are correctly meeting their reporting obligations when completing their tax returns, compare to ATO records, and provide insights that support the ATO's regulatory approach in a bid to reduce the impact of financial crime.
The Australian Transaction Reports and Analysis Centre (Austrac) in late 2017 gained authorisation to extend anti-money laundering and counter-terrorism financing regulation to cryptocurrency exchanges.
As a result, digital currency exchange service providers must apply the same obligations as other financial sector businesses, and are required to identify, manage, and mitigate risks of money laundering, terrorism financing, and other serious crime. They are also required to report suspicious matters to Austrac.
"Given the rapid expansion of cryptocurrencies globally there are significant challenges in expanding the data acquisition, especially where the Digital Service Providers operate internationally," the ATO submission continued. "This is partially mitigated by the fact we can detect incoming and outgoing funds to offshore digital currency exchanges through Austrac and International Funds Transfer Instruction transactions."