The ATO extends data matching to cryptocurrency

The Australian Taxation Office (ATO) will now have oversight over the digital currency held by Australians, with the overarching idea being to ensure that individuals in possession of cryptocurrency are paying the right amount of tax.

The ATO will be collecting bulk records from Australian cryptocurrency designated service providers (DSPs), with the government entity kicking off a data-matching program that will see DSPs hand over information on cryptocurrency purchases and sales to aid its investigations.

"The ATO uses third party data to improve the integrity of the tax system by identifying taxpayers who fail to disclose their income details correctly. We also use third-party data to assist taxpayers in meeting their tax obligations through pre-filling of tax returns," Deputy Commissioner Will Day said, noting the data will make up a key element of the ATO's compliance program.

"This data will be collected under notice from the DSPs on an ongoing basis."

The ATO estimates that there are between 500,000 to one million Australians that have invested in crypto-assets.

"Cryptocurrency and blockchain technology is seen as an enabler of existing risks for the ATO," the ATO said in a statement. "Cryptocurrency has been used to move funds within the black economy, hide money offshore, and is sometimes linked to risks with unexplained wealth and undeclared taxable capital gains."

The ATO will be working with other regulators, in particular the Australian Transaction Reports and Analysis Centre (Austrac) and the Australian Securities and Investment Commission (ASIC), as part of the program.

In addition, the ATO is part of a joint international effort, called the Joint Chiefs of Global Tax Enforcement (J5), that is investigating cryptocurrency-related tax evasion and money laundering.

With Centrelink's "robo-debt" highlighting how government data-matching initiatives can go wrong, the ATO said it would give individuals that are contacted by the ATO the opportunity to verify the information it has before compliance action is undertaken.

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While the ATO has only just gained transparency over what cryptocurrency is owned by taxpayers, Austrac received legislative approval in December 2017 to monitor digital currency for anti-money laundering purposes, following the passage of the Anti-Money Laundering and Counter-Terrorism Financing Amendment Bill 2017.

Under the amended legislation, digital currency exchange providers are required to enrol with Austrac and register on the Digital Currency Exchange Register maintained by the government agency.

Exchanges need to maintain a program to identify, mitigate, and manage the money laundering and terrorism financing risks they may face. Similar to a bank, the exchange must also identify and verify the identities of their customers; and report suspicious matters, international transactions, and transactions involving physical currency that exceeds AU$10,000 to Austrac.

They are also required to keep certain records related to transactions, customer identification, and their program for seven years.

The changes to the legislation also means that for the purposes of investigating money laundering and terrorism, digital currency and the exchanges it is hosted on are treated in-line with physical cash kept in a bank.

It follows the federal government aligning the GST treatment of digital currency, including Bitcoin, with regular money as of July 1, 2017, in a bid to promote the growth of Australia's fintech industry.

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