Our ATO Community is here to help make tax and super easier. Ask questions, share your knowledge and discuss your experiences with us and our Community.
This post is archived and may not be up-to-date.
My original response was entirely why Crypto to crypto exchange shouid be, and is taxable.
People have come up with all sorts of schemes to avoid tax as far back as the bricking over of glass panels to avoid window tax in medieval times.
Your original post only made the unsubtantiated claim that crypto-to-crypto transactions could be used to avoid tax. You still haven't explained *how* that is possible. As I asked earlier, please elaborate...
If I Shapeshift $1000 of Crypto A for $1000 of Crypto B I still have $1000 of crypto. I have gained nothing so why should this be a CGT event? It is little different to going to the bank and changing $1000 of $20 notes for $1000 of $50 notes.
Secondly, the capacity to hide transactions if your view is accurate makes it dangerous to law enforcement to the point of requiring banning fullstop let alone a view on how it should be treated for tax!
You can hide transactions by using ordinary cash. Are you going to ban that too? And as I said previously you can't ban cryptocurrencies. They are unstoppable. Because they are decentralised there is no central authority to shut down. It would require shutting down millions of nodes run by individuals around the globe. Good luck with that.
This technology is here to stay so better get used to it and make sure that tax deals with it in a realistic and practical way.
To defeat those two points alone you had better have a very good 10 reasons why crypto barter gains should not come with an obligation to account for in your tax return.
Firstly, math is obviously not your strong point if you think that you need 10 reasons to be better than 2... Secondly, you've given exactly zero substantiated reasons why crypto-to-crypto exchanges should be a CGT event.
I've already given you two reasons why it shouldn't be, so why don't you try and do better than that:
I don't think Jack has traded crypto extensively/at all. It's not possible to come close to an accurate AUD value of a trade that happened 9 months ago at 5:50pm on some foreign exchange that is in no way connected to fiat. If you at that point in time attempted to go through the process of selling that via an Australian exchange into fiat, the value would be completely different (possibly by thousands in the case of BTC). There's a multitude of factors that makes this unrealistic to expect.
I think some people just assume it can be done, and that you should pay regardless of how impossible it is to work it out. They have an almost condescending/hardline approach, when really we are the few that actually want to do the right thing! He doesn't seem to understand that there is no liquidity on Australian exchanges and so most people trade overseas. They also trade overseas because you can't buy most altcoins in Australia. Some altcoins you can't buy on mainstream exchanges. How do you audit someone that has been using EtherDelta? I don't believe the coins have any taxable value that can be linked to AUD until they can actually be traded into fiat/something real. It's chaos (for auditing purposes).. a majority of people simply can't even begin to work out why it's chaos.
I think most people here aren't trying to avoid tax at all, but are met by people like Jack as if they are. I want to pay tax on what can be determined to be real world value, that which I have cashed out into AUD (until I cash it out, the value of it realistically is like that of schrodinger's cat - it can't be determined, ATO taxing people on something that may very well be dead). Taxing crypto to crypto pretty much guarantees few people will actually be able to work out their taxes. That leads to people avoiding the issue and complications down the road. I find it hard to believe anyone heavily involved in crypto thinks taxing crypto-to-crypto is logical.
If the ATO has some program or way to audit this, it would be handy to share this program with the public so that we have a chance of being able to work out our tax obligations.
I'm aware that you can use etherscan to attempt to work out transactions from Etherdelta. It's not an easy process though. What difficult is.. say you buy $300AUD worth of ETH in Australia. The real world value of that ETH isn't $300 (it's not even worth 300 on that exchange as if you immediately wanted to sell it, you couldn't sell it for anywhere near $300 and not for ages unless you're willing to take a massive loss). In Australia, there's a premium on the cost of the ETH due to lack of liquidity, and there's also hefty exchange fees. So you send this ETH immediately (might not be immediate) to Bittrex for example. The value of the ETH might then be worth $270 (in AUD once you convert the real world USD value. Have you lost money at that point? There's usually a massive difference in price between exchanges. In the time it took you to send the ETH to Bittrex the market price may have dropped or gained anyway (sometimes it can take half a day). So, lets say there was a rally in the time it took you to send ETH to bittrex, and the value is now worth $400 AUD (if you convert the American value on that particular exchange. Is this taxable? Could you be taxed for sending Ether from one wallet to another if the value increases while being sent? How do you determine the difference between sending Ether and perhaps selling it (at a place like EtherDelta), and who is to know which address belongs to who?Is it really even worth $400AUD? I would say it definitely isn't worth 400AUD, but I believe ATO thinks it is. Let's say your intention was then to use the ETH to buy another ALTCOIN, and you never actually intended to hold onto ETH at all (because you can't buy the altcoin with anything but ETH from that exchange). You buy X on Bittrex with 1 ETH...... (which is supposedly now worth 400AUD?). So that would be a taxable event cos you've "made" $100AUD? Nevermind that ETH might in 30 minutes time be worth $250AUD/USD.. whatever. How do you record that? How is it really worth anything tangible in AUD? There's no AUD value on the exchange. Converting whatever values you may have to AUD using some historical chart gives you no indication of worth in AUD, as it's worth something completely different in AUD (outside of exchange rates between USD/AUD). At best, you're making a wild guess as to the value... and multiply those wild guesses over thousands of trades and you have a MESS!
Now, say you've got 2 ETH sitting on Bittrex already (for a total of 3ETH on the exchange). You want to send that 1 ETH to another exchange in order to buy something you can only buy there. Which ETH have you sent? Which ETH did you even spend to purchase the previous ALTCOIN? The ETH you only recently deposited on Bittrex or the ETH that was sitting there for a few months and purchased at a different price? Who is to say which ETH was spent, and what the original value was? Maybe you're only spending .023 BTC, from a stack of .2 BTC which has been built up from different purchases and sales over time (combined from multiple exchanges). What was the original worth of that .023BTC in AUD? How do you determine this from some future date, or as an auditor looking at all of this from the outside?
The problems with Etherdelta. I find it hard to work out what is going on from Etherscan. You could make a profit or a loss simply depositing onto the exchange (time duration). Using Etherdelta is not a smooth process. It can take half a day to buy something, as you vary how much gas you use to purchase the token. Sometimes it simply doesn't work, or your transaction takes a day to go through. Attempting to work out tax obligations ontop of this...? Sometimes in attempting to buy X amount from any one exchange it might break it up into 20+ different transactions with different prices (all within a range). But what is the value of the tokens you purchased? They don't sell on Australian exchanges, you've purchased with ETH, but the ETH is worth what exactly? On Etherscan it would have some average USD value, but simply converting that USD to AUD for that day's exchange rate doesn't give you an accurate value of what that ETH is worth realistically in AUD.
There are issues retrieving data from exchanges like binance.
The main question is really in how you're meant to work out the AUD value of anything. What are we meant to be using as a guide seeing as we don't trade on Australian exchanges? The difference between what you're buying and selling for overseas compared to what you're buying and selling for over here is large.
1 BTC on Poloniex from 9 months ago is worth how much in AUD? Do you get that by converting the USD value on that exchange at the time? How is that relevant to AUD value? You've bought it in AUD, sent it overseas to where it's valued at something completely different in USD (not even close to the exchange rate).. so with all the altcoins you purchase with that BTC from then on, are you measuring value in the USD value of that exchange, the USD value when converted to AUD (which would be completely different to actual AUD value on an AUD exchange). Some exchanges don't measure in USD either, just BTC. Are you valuing that BTC compared to USD from some chart like coinmarketcap (that averages out value from different exchanges and is likely not accurate way of determining what you actually paid - because different countries sell at premiums which muck up average values).
Maybe when you sell on Poloniex or whatever exchange, you'd want us to work out the value it might be if you were to sell at that exact time on an Australian Exchange? How would you go about working that out though? You couldn't sell at that moment in time on that exchange even if you wanted to as the time it would take, the expensese incurred and the liquidity difference altering actual price are impossible to work out. It's all theoretical until you've actually cashed it out into AUD.
I've tried to keep this simple. But really, in attempting to work out past price differences, you're having to convert from USD to AUD (for the exchange rate on that specific day), or BTC to USD to AUD, using estimates which vary wildly depending on exchange and certainly aren't even close to what you'd be able to sell such for if you went through the process of getting it all back onto an AUS exchange and selling.
Date,Market,Category,Type,Price,Amount,Total,Fee,Order Number,Base Total Less Fee,Quote Total Less Fee
2017-11-05 06:38:53,GAME/BTC,Exchange,Sell,0.00019310,63.10445982,0.01218547,0.15%,**TFN removed**79,0.01216720,-63.10445982
^^Some of the data from one exchange (multiply that by thousands, in different formats/currencies etc). Okay, whatever, but then combine it all with data from 6 different exchanges (some maybe like Etherdelta), trying to track where the Ether/BTC etc has come from, what its original purchase price was worth as it came from elsewhere. Some exchanges seem to randomise the address (it changes with different transactions), or it seems like the exchange is a blackbox by which when you send BTC there, you're given a kind of credit not on the blockchain to spend in order to speed up the process. It becomes a nightmare to track.
I no longer have access to one of the exchanges, so I can't work out what my address was when I was on it. The data that I have from it is completely insufficient. It doesn't even tell me the exact amounts of ETH etc I purchased, only the total fiat equivalent price. This means I can't track the ETH, as I'm uncertain of the amounts being sent. I've been trying to trace back transactions from other exchanges, but when I finally find that exchange and the address I was supposedly sending from it's an address for the exchange (as some of the amounts are huge - I'm not that rich).
Again, I want to pay my tax. I want to pay tax on what I've actually made, which can accurately be determined in FIAT only. Crypto-to-crypto transactions.. there's nothing being made there that can be accurately valued in AUD. It also means that anyone that perhaps sold crypto to purchase other crypto during January before the crash (or during a bear market at any time) are likely to be unfairly out of pocket. It basically defeats the purpose of buying/selling crypto during such times (but how are you meant to know that you're in a bear market, or about to be in one at that point in time. You're forced to pay in AUD for profits that won't be realised, perhaps ever, in AUD. I'd say this is a majority of Australian's that bought into crypto, as there was a massive increase in interest before the crash. Even though they've lost a lot of money, they're finding they have to pay for "gains" from crypto to crypto, when really what they were probably trying to do is diversify or simply spend stuff like ETH on ALTCOINS you can only buy with ETH.
An excellent breakdown of how difficult it is to keep track of crypto transactions and expenditure.
It is nigh on impossible to keep that many records, and a definite nightmare for any accountant to follow.
The majority of us dealing in crypto want to pay tax but ATO is making it very difficult to understand. They themselves are only beginners in this field, and their so called experts do not know what is going on (I have spoken to them).
I believe paying tax on exchange and withdrawal of crypto to AUD is the way to go. If I purchase btc at $350, and sell for $10000 - the original investment of $350 = $9650, say tax at 25% is $2412. If I am taxed at the whole 10k, it is $2500. Paying tax on what you withdraw is much easier, and I would not care about the diference of $88.
Keeping withdrawal receipts entering data in an excel sheet is so easy, and much more friendly for the acountant.