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Re: LIFO method

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I have predominantly being purchasing cryptocurrency since 2016 for online gaming and have been advised by my accountant that I need to declare my crypto trading activity to the ATO. My accountant is saying that I need to use FIFO to calculate any CGT event however the issue is that original coins purchased are at a low purchase price and have since been lost, either gambling, leverage trading and also in ICO's in 2017. The FIFO method is overstating gains as the majority of early coins are lost and not the coins sold in more recent times. The only exchange I have ever sold to fiat on is btcmarkets in Australia and they offer a FIFO and LIFO option for tax reports. Coinpanda also states that LIFO is allowed for tax reporting in Australia. Using the LIFO method this shows a more accurate (yet still not correct, it's still overstated to the true gains) in regards to any CGT, however as I have closed most of my gambling accounts I cannot access accurate records to substantiate the actual movements from the wallet. Two questions, 

1. Am I able to use the LIFO method for cryptocurrency in Australia

2. Given I am unable to show every transaction would taking the BTCmarkets tax report which is the only exchange I gave sold on be considered reasonable to help pay any taxes calculated for CGTs, reiterating my point that my purchases have mainly been for gambling and as to the nature of gambling you lose most of the time and then sometimes win. This means from time to time I may have won and then sold an amount of Bitcoin that came from a poker win or something to this effect 

 

any advice greatly appreciated 

 

 

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Enthusiast

Replies 1

I'm still relatively new, but I'll give this a go. (Not financial advice).

You may need to define precicely how you "lost" the coins.  I believe that you can decalre if you have lost access to coins that you own - eg lost password or hardware, but you may need to provide details so that it can be confirmed if those coins move in the future.

If you have lost coins in gaming/gambling - you will still need to declare CGT for those.  Just like you can't claim an income tax deduction for money lost at the pokies.

If you have lost coins in leverage trading, or ICOs where the value of those coins dropped from your purchase price, you may be able to declare these as a capital loss and offset that off the gains.

If you won BTC in a poker game, I believe that these would be considered to have a zero cost basis, so when you sell them, you will pay full CGT on the amount.

The ATO are very helpful when you're trying to do the right thing, so I'll be very interested to see their official response.

7 REPLIES 7

Most helpful response

Enthusiast

Replies 1

I'm still relatively new, but I'll give this a go. (Not financial advice).

You may need to define precicely how you "lost" the coins.  I believe that you can decalre if you have lost access to coins that you own - eg lost password or hardware, but you may need to provide details so that it can be confirmed if those coins move in the future.

If you have lost coins in gaming/gambling - you will still need to declare CGT for those.  Just like you can't claim an income tax deduction for money lost at the pokies.

If you have lost coins in leverage trading, or ICOs where the value of those coins dropped from your purchase price, you may be able to declare these as a capital loss and offset that off the gains.

If you won BTC in a poker game, I believe that these would be considered to have a zero cost basis, so when you sell them, you will pay full CGT on the amount.

The ATO are very helpful when you're trying to do the right thing, so I'll be very interested to see their official response.

Initiate

Replies 0

Hi Daschel

 

Thanks for your response. 

 

In essence my goal is to provide the most accurate information I can, although this is obviously not entirely possible, and I in good faith want to pay any reasonable CGT that may be applicable, but not an incorrectly calculated CGT. Most simply put, If ten coins were purchased in 2016 for $400 each and lost gaming/gambling, I then needed to repurchase more coins to play again, and incrementally price has gone up over time. I have sold coins at certain times, and as prices have gone up, the FIFO method takes the initial purchase of $400 and then the disposal price of $10,000 as an example and calculates a CGT event of $9,600 this isnt correct as the coin that was sold, was a recently purchased coin, not the original coin that was lost.

 

I have been advised by friends who are experienced in crypto as holders and traders, not gamers, and I was advised that the LIFO method is allowed to be used, an article from coinpanda here also states this, 

 

https://coinpanda.io/crypto-taxes-australia-ato/?fbclid=IwAR3njdTq8xQwdtXn5ygrV-Po_dyY82qXu-lbhZLrbx...

 

The Key extract being:

The Australian Tax Office has not published official recommendations for which accounting method to use for calculating capital gains. Taxpayers are free to choose between FIFO (First in First Out) and LIFO (Last in First Out), similarly to what is practiced in many other countries. The former accounting method, FIFO, is in general recommended by most tax accountants today. Most cryptocurrency tax software like Coinpanda supports both FIFO and LIFO cost basis methods and calculates your capital gains for cryptocurrencies automatically.

 

I have no issue to use the automatic reports that calculate CGT on the LIFO method as this has more correlation to the aquisitiion and disposal dates and prices than the FIFO method, and logically if I was being untrue in the fact that coins were lost, then at some stage if I did indeed still have coins (which I dont) then at some stage working backwards through LIFO I would then disposal of the original coins.

 

My main question I guess relates to whether I can use the automated LIFO reports as I am not prepared to incorrectly pay CGT on gains that have not been made, but also want to provide comprehensive system generated reports to show that I am acting in good faith of the transaction records. The LIFO method still correctly calculates cost base on the movement of coins as well as the aquisition and sale.

 

Community Moderator

Replies 4

Hi @Josh4 

 

 You can use either method to calculate your capital gain. You are always required to keep all records which it sounds you have.

 

If you need assistance with a specific situation please contact our early engagement team who will be able to provide you with a specific tailored response.

Initiate

Replies 3

Thanks Kylie,

 

Really appreciate your response.

 

Btcmarkets.net which is the only platform I have ever sold coins on is where I am able to generate the CGT reports. I do not have every deposit record into gaming accounts as the high majority of accounts have been closed and due to the nature of crypto it is in effect almost impossible to identify each transaction from the wallet address alone.

 

The btcmarkets wallet obvioulsy tracks movements in an out (purchases, sales as well as transfers in and out), and with this being the only exchange a coin has ever been sold, would it be considered reasonable to use these automatically generated reports on btcmarkets using LIFO to generate reports for 2020, 2019 and 2018 years and submit all to the ATO to show crypto activity for the prior three years in relation to any CGT gain/loss?

 

There is obvioulsy a difference between the FIFO and LIFO reporting method, however, as previoulsy mentioned, coins that were aquired years ago at an earlier date and cheaper price have been lost, and from my research may actually be exempt from CGT under the Personal Use Asset criteria as amounts purchased were below parcels of $10,000 and were almost always disposed of within hours/days of being purchased for gaming, which I beleive is conisdered as personal use (as not an investment, profit making scheme or related to conducting a business).

 

In answer to the statement that it sounds like I have all records, this isnt entirely true as many accounts are closed, what I do have is record of every purchase and sale that has been made which I believe to be where the true CGT events will have been realised.

 

I believe this artivle will be relevant to many people who are trying to correctly report crypto activity, so as much detail that you can give will not only help me, but I am sure many other people who are wanting to correctly report activity on crypto wallets / transactions.

Enthusiast

Replies 2

Hi @Josh4 ,

Can you clarify "gaming"?  If I'm correct that you mean gambling, then I'd be cautious about writing it off as "personal use" - I think that may be incorrect.  If, for example, you are betting BTC in the hoping of winning more BTC, then I think any loss would still be considered a disposal for CGT.  If you were to use BTC to purchase a "ticket" or "entry" in to a poker game, where no cyrpto currency is being used in game, not any offered in winning, then it may possibly be considered personal use.

If it were for video gaming, eg, if you used the BTC to make in-game purchases, then this may (possibly) be considered personal use.

 

Disclaimer: this is my personal understanding, and should not be considered financial advice Smiley Happy

Initiate

Replies 1

Hi Daschel

 

Thanks for your input again Smiley Happy

 

I dont believe the gambling transactions are too relevant here as the losses are more than any wins, and the LIFO method tracks the movements of coins in and out of the account, as well as the purchases and sales to calculate the CGT. To be safe I agree its best not to exclude any transactions on peronal use, and I just use the actual system generated report.

 

My main concern was where FIFO calculcated the CGT on original coins that were lost, and LIFO resolves this issue Smiley Happy

ATO Community Support

Replies 0

Hi @Josh4,

 

As @KylieATO advised, you are free to choose which coins you are disposing of (LIFO or FIFO), however, you do need to retain a record of these transactions. If you experienced a loss transacting with your cryptocurrency from your first purchases, you can include these on your return as a capital loss. We have information on our forum about how to calculate capital gains tax on cryptocurrencies.

 

There is also a previous post on crypto, this has a good explanation of how it is looked at when transacting and working out your CGT.

 

Please use the links provided for further information.

 

All the best.