ATO Crypto Tax Evasion: Risks and Penalties
The ATO has made it perfectly clear that they expect Australian taxpayers to declare their crypto and pay Capital Gains Tax or Income Tax. Despite this, many Australians are unaware their crypto is taxed or, worse still, think they can evade their tax obligations on their crypto. In this article, we’re covering everything you need to know about the ATO and crypto tax evasion in Australia, including how the ATO tracks crypto and what the penalties for crypto tax evasion are.
Will I get punished for crypto tax evasion?
Yes. Our Australian crypto tax guide shows that the ATO's perfectly clear that all crypto, including DeFi, is subject to Capital Gains Tax or Income Tax in Australia. If you're caught evading tax on your crypto by the ATO - the penalties are steep. Depending on the severity of your offense and the intent behind it, crypto tax evaders face anything from a slap on the wrist to imprisonment. Let's learn more.
ATO crypto tax evasion
According to the ATO, there are two different kinds of crimes when it comes to taxes:
Tax fraud refers to making a false representation of your tax liability. A representation is fraudulent if you made it knowing it was false or made it with no real belief that it was true.
Meanwhile, tax evasion refers to behaviour that results in an avoidance or shortfall of tax - this could be things like omitting income or wrongly claiming a deduction with no credible explanation. Even if an omission is unintentional, it may still result in a verdict of evasion.
So, what are the penalties if you’re an Australian crypto investor who is found guilty of tax fraud or tax evasion?
What are the penalties for crypto tax evasion in Australia?
In a word - severe. There is a broad spectrum of penalties depending on the offence - ranging from a fine to imprisonment.
Federal tax offences are legislated under the Criminal Code Act 1995. The most serious tax fraud crimes carry a maximum penalty of up to 10 years imprisonment.
Of course, this is the worst-case scenario. At the ATO’s discretion, they may decide your case is not serious enough for federal court and instead may impose an administrative penalty (a fine). This is often the case for offences like making a false statement on your tax return or failing to lodge your tax return by the deadline.
Administrative penalties in Australia have a simple formula for calculation. As of July 2020, one penalty unit is $222. The amount of penalty units you receive is calculated using a statutory formula based on your behaviour and the amount of tax avoided. In general, the more intent you had to evade tax and the more tax you evaded, the higher the penalty. The maximum penalty for tax evasion is 200 penalty units and two years in prison.
And what about late filers? Bad news too. Failing to lodge your tax return can get you a maximum of 5 penalty points - so $1,100 - depending on how late you are!
Read next: Can the ATO track crypto?
What if I’ve previously avoided crypto taxes?
Didn’t know you needed to pay tax on crypto and now panicking? Whether you intentionally or unintentionally avoided crypto tax - the ATO has what's known as a voluntary disclosure. You can use a voluntary disclosure to inform the ATO of a mistake or inaccuracy left out of a lodgment, as well as any false or misleading information. A voluntary disclosure gives you the chance to correct your tax affairs without penalty.
This isn't to say you won't get an administrative penalty. But in general, those who make a voluntary disclosure can expect a reduction in the penalties or interest charges they'd receive.
The ATO often invites taxpayers to submit a voluntary disclosure prior to an audit. If you make one before the date advised, penalties are usually reduced by up to 80%.
What's the ATO crypto tax evasion message?
One last thing - there's an ongoing scam where fraudsters are pretending to be from the ATO and telling taxpayers they are suspected of being involved in crypto tax evasion. These scammers ask victims to connect their wallets and provide more detail via a link. If you receive this message (via SMS or email) - do not click on the link. The real ATO will never ask you to log in to their services via an SMS or email link. Keep up to date on other scams.
How Koinly can help with crypto taxes
We get it - crypto tax is a headache. Calculating, reporting, and filing all present their challenges, especially if you’re using a multitude of exchanges, wallets, and blockchains.
But with Koinly it’s easy. Not only to we keep you up to date with the latest ATO crypto tax guidance, we can also help you calculate and report your crypto taxes to the ATO in no time at all. Better still, we even keep historical records of your crypto transactions for up to six years should the ATO ever audit you.
All you need to do is sign up for your free Koinly account and sync all the exchanges, wallets, and blockchains you use via API or by uploading a CSV file. Koinly will then identify your taxable transactions for you and separate them by the kind of tax you’ll pay - whether that’s short-term Capital Gains Tax, long-term Capital Gains Tax, or Income Tax. Koinly can identify the cost basis of all your crypto assets and calculate the subsequent capital gain or loss, as well as identify the fair market value of any crypto income on the day you received it.
All this information is then collated in your simple tax summary. When you’re ready to file, just upgrade to a paid Koinly plan and download the report you want, when you need it. Koinly can generate the ATO myTax report, a Capital Gains Tax report, and a Complete Tax Report depending on how you prefer to file. Once you’ve downloaded it, simply use your Koinly report to file with myTax or paper forms, or hand your report over to your accountant. Done!
Got more questions? We've got you covered.
Do I have to pay tax on cryptocurrency in Australia?
Yes. The ATO is clear that crypto is an asset and as such, it’s subject to Capital Gains Tax or Income Tax depending on the transaction. Learn more in our Australia Crypto Tax Guide.
How does the ATO know if I have crypto?
The ATO has a data sharing scheme with DSPs or designated service providers. In order to operate in Australia, crypto exchanges need to register with AUSTRAC as a DSP. The information shared between crypto exchanges and the ATO can date back as far as 2014. Learn more about how the ATO can track your crypto.
As well as this, the ATO has already announced this year that they'll be scrutinising cryptocurrencies more than ever to ensure taxpayers are accurately reporting their gains, as well as to investigate those reporting as investors when they should be reporting as a trader. The crackdown will involve auditing taxpayers’ record keeping to ensure cost basis and expenses are being reported accurately.