Tax return 2022 cryptocurrency: What the ATO is expected to be cracking down on this EOFY

Cryptocurrency traders will again be in the sights of the Australian Taxation Office this tax season, industry experts say.

Tax season is just around the corner, with much of the focus likely to be on the low-and-middle-income tax and cost-of-living offsets.

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But leading tax experts warn that there are pitfalls hiding that could catch unexpecting taxpayers out.

H&R Block’s Director of Tax Communication Mark Chapman says that one of the most prominent topics on the ATO’s hit list is cryptocurrency traders.

“The ATO will also be taking a closer look at the booming market in investments in cryptocurrencies like Bitcoin,” he said.

“Increasing numbers of taxpayers are jumping on the bandwagon and the ATO believes that some of them are failing to declare the profits (and in some cases the losses) they are making on their investments.

“Remember, investing in cryptocurrencies can give rise to capital gains tax on profits. Traders can be taxed on their profits as business income.”

He said that the ATO estimates there are between 500,000 and one million Australians who have invested in crypto-assets.

“To help them in their search, the ATO is collecting bulk records from Australian cryptocurrency designated service providers as part of a data-matching program to ensure people trading in cryptocurrency are paying the right amount of tax.

“Data to be provided to the ATO will include cryptocurrency purchase and sale information. The data will identify taxpayers who fail to disclose their income details correctly.”

Tax season is just around the corner, with much of the focus likely to be on the low-and-middle-income tax and cost-of-living offsets. Credit: Getty Images

Last year, the ATO issued a thinly-veiled warning to crypto traders that they needed to declare their activities.

“We are alarmed some taxpayers think the anonymity of cryptocurrencies provides a licence to ignore their tax obligations,” Assistant Commissioner Tim Loh said.

“While it appears cryptocurrency operates in an anonymous digital world, we closely track where it interacts with the real world through data from banks, financial institutions, and cryptocurrency online exchanges to follow the money back to the taxpayer.”

Australian notes scattered on a table..
Australian notes scattered on a table.. Credit: pamspix/Getty Images/iStockphoto

Cryptocurrency isn’t the only error-prone hotspot Chapman is expecting the ATO will focus on.

He says that the ATO recently claimed there was an $8.7 billion shortfall between the tax individuals are expected to pay and the tax they actually are paying.

“The ATO believes that work-related expenses claims are the biggest element in that ‘tax gap’ and have signalled that they’ll be looking closely at these deductions this year,” he says.

Chapman listed the deductions he expects they’ll be homing in on the closest:

  • Claims for work-related clothing, dry cleaning and laundry expenses.
  • COVID-related tax deductions, including quarantine expenses and protective equipment.
  • Deductions for home offices.
  • Overtime meal claims.
  • Union fees and subscriptions.
  • Mobile phone and internet costs.
  • Motor vehicle claims.

“The focus on home office, mobile phone and home internet costs is likely to be particularly pronounced with so many people working from home due to COVID-19,” Chapman said.

“H&R Block’s top tip before making any claim is to be confident that you understand what you can and can’t claim and that you have the necessary proof (invoices, receipts, diaries, etc) that you actually incurred the expenditure and that it was work or business-related.”