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.
