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Re: Documentation Requirements for Trading on Foreign Exchanges Without Fiat (AUD)

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Initiate

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On the ATOs page for tax treatment of crypto-currencies, there is a section titled "Transacting with Bitcoin". (Q1) Do the documentation requirements listed there also pertain to cryptocurrency trading on exchanges? (Q2) including crypto to crypto? Right before listing the documentation requirements, CGT is mentioned. (Q3) Is this documentation only required where CGT is applicable?

 

For my situation I am not buying and holding. I'm trading frequently in a profit making scheme. So any money I make from the sale of cryptocurrency would be treated as taxable income and would not be subject to CGT. As I am doing this as a business; any purchase of cryptocurrency with Australian dollars would count as a business expense. My taxable income should simply be the amount of Australian dollars I have made selling crypto minus the money I have spent in buying crypto. I have no issue providing documentation for exchange transactions involving Australian dollars. I do however have a massive problem if your require such documentation for trades conducted on foreign exchanges.

 

For reference here is the documentation requirements that were listed under Transacting with Bitcoin:

"You need to keep the following records for bitcoin transactions:

  • the date of the transactions
  • the amount in Australian dollars (which can be taken from a reputable online exchange)
  • what the transaction was for
  • who the other party was (even if it’s just their bitcoin address)."

 

The following arguments apply specifically to trading on foreign exchanges. Especially involving crypto to crypto trading.

A: Why documentation should not be required:

 A1: The information provided by the documentation cannot be used in a meaningful way. Cryptocurrency is not like stock, as it is mostly not traded against fiat (AUD). Due to the high volatility of cryptocurrency you would not be able to use trading information converted to AUD to estimate a trader’s profits or losses. You would come to an incorrect conclusion. For example: John sells 1X (worth $500) and sells it for 3Y (worth $550), he makes a net profit of $50. Suddenly 3Y drops in value any is only worth $400. John then sells 3Y (worth $400) for 0.8X (worth $400). So according to his records he made $50 but he actually lost 0.2X. If he originally purchased 1X for $500 then he actually has a net loss of $100, which is very different to a net profit of $50! A trade history of gains and losses in AUD is highly inaccurate and cannot be used in a meaningful way.

 

 A2: The value of a cryptocurrency (if listed) on an Australian exchange is not always a true representation of the value of the cryptocurrency. This is due to differences in supply and demand. (Lower liquidity allows the price to be further off it's average value)

 

B: Why it is not possible to provide documentation to the standards listed above:

 B1: It is not possible to provide an Australian dollar amount for a cryptocurrency that listed on a foreign exchange but not listed on any Australian exchange. Everyone who trades a cryptocurrency that is not listed on an Australian exchange cannot meet documentation requirements.

 

 B2: It is impossible to meet documentation requirements for people who trade cryptocurrency frequently due to the high volume of trades. This is due to the following factors: (a) Trades are often split up into multiple smaller trades to match other peoples orders; (b) For every currency you trade you would have to find an Australian exchange that has that cryptocurrency to get it's price in AUD. For most people, that information is just not readily available, nor is the price on an Australian exchange even relevant (See A2). Having a high trading volume makes reporting impossible.

 

I'm sure that there is plenty more arguments I can make against the documentation requirements but I will leave it there for now.

Also, don't recommend that I ask for a private ruling or contact the early engagement team. Don't waste my time.

6 REPLIES 6
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Devotee

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Crypto, can you give us a real life example, the exchage, the trades and so on.

And I’ll tell you how I’d do it.
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Initiate

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Just tell me your method and I will tell you if it is practical. Please understand that I trade hundreds of different cryptocurrencies and sometimes have thousands of trades per day.

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Devotee

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Crypto,

What do you do to work out if your making a gain or a loss? I assume your making some kind of analysis daiky ti determine if your strategy is working? What you currently do may just need some additional things applied to it save having to do two separate things.

What particular cryptos are you trading as valuation will depend on each cryptos characteristics?

What trading trading platforms do you use as the methodology will depend on the data given you when trading?
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Initiate

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@Jack1I determine wether I have made a profit or loss based on the changes of value of my portfolio. So for a particular cryptocurrency it may have multiple pairs. For example a currency named X could be traded against ETH, BTC and USD. I then work out which of these pairs are "valid" based off trading volume and order book distribution. For this case, an "invalid" pair would either have a low trading volume or have an order book that shows extreme differences in price (shows that not many orders are placed). Then on the remaining "valid" pairs I convert the lowest ask price to USDT(Tether).

 

So for example if the lowest ask price for a cryptocurrency X is 0.1BTC and 1BTC was worth 10,000USDT, I would determine that for this pair that X is worth 1000USDT. I would compare the converted prices and use the highest "valid" price as this represents the highest possible price I could currently potentially sell that cryptocurrency for.

 

"What particular cryptos are you trading as valuation will depend on each cryptos characteristics?"

A: Pretty much every single cryptocurrency that is available on the exchange I trade on except for ones that I blacklist.

 

"What trading trading platforms do you use as the methodology will depend on the data given you when trading?"

A: I won't reveal the particular exchange I trade on, but I have access to the general information you get for each trade which is time, quantity, price and fees. For each trade this is in BTC, ETH or USDT.

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Initiate

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I work out if I made a profit or loss by keeping track of the overall value of my portfolio by converting respective prices of currencies from Bitcoin and Ethereum to Tether. Some currencies have mulitple pairs (can be traded with multiple currencies) so I convert all the prices and compare them. I use the highest pair that is considered "valid". I determine if a pair is valid by checking the trading volume and order book distribution to make sure that it is likely I could sell that currency at that price. If no pairs are considered valid then it uses the lowest valuation.

 

Simple example: You can convert the repective Bitcoin (BTC) or Ethereum (ETH) price to Tether (USDT) based on the respective Tether price of Bitcoin and Ethereum. So if 1BTC is worth 10,000USDT then 0.1BTC is worth 1000USDT. Therefore is a currency X is worth 0.1BTC, it is worth 1000USDT.

 

"What particular cryptos are you trading as valuation will depend on each cryptos characteristics?"

A: All currencies that are available on the exchange unless I specifically have decided not to trade them. I use automated software so I simply blacklist currencies I do not want to trade.

 

"What trading trading platforms do you use as the methodology will depend on the data given you when trading? "

A: I won't reveal the particular exchange I trade on but I have access to the usual. Currency purchased, currency used in purchase, volume, price, fees, total. All the prices are in BTC, ETH and USDT.

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Devotee

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I see arbitrage has been moved alongside going long as the potency of up and up has waned.

You won’t be the last to ask.

Sounds like your not into holding just trading quickly.

Why don’t you make sure you track bitcoin prices and then just make sure you only hold bitcoin at midnight June 30.

Would that and having a complete listing of all your trades as you have described get you over the line. (Clearly you’ll need to have your account ID’s, Chain Names and so on so grabbing the chain and pullling all entries with your account ID could be done as a check you haven’t lied).