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Taxable Event Between Crypto Trades

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Enthusiast

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If IRS statistics are anything to go by, where only .5% of people report crypto earnings, that's a reflection of the reality in reporting crypto.
I'm currently getting to get accurate data from an Australian exchange so i can start to work it all out from the beginning. If I can get that information, and the information from some of the asian exchanges, I might be okay to figure out some... it won't be accurate but there is no accurate way to determine value. Just because cointracking inputs some number, doesn't make it accurate.
At the end of the day, if only .5% of people are reporting..
Also, crypto to crypto trades taxable.. what a mess. Good luck auditing that
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Newbie

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Obviously your cointracking clients haven't used the non-tracking sites such as liqui.io, etherdelta, okex etc.. the list goes on. The list of exchanges you can import from is very small.


You can't tell me some uni student who has turned 2k-20k with hundreds of untrackable trades that he should have been responsible and predicted the ATOs crypto-crypto stance before they announced it and kept track of every transaction. 

I understand you are coming from a legal perspective here, but in reality this person is not going to spend dozens of hours(and hundreds if not thousands on accounting bills) in order to make sure their tax is reported 100% correctly. They will either just report their crypto-fiat transactions or not report at all. The ATO really needs to make paying tax on crypto simple if they want people to actually pay.

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Devotee Registered Tax Practitioner

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The ATO stance has been the same since at least 2014 , as have the rules for calculations.

I do understand what you are saying and yes your only option is to estimate using a reasonable basis. My suggestion would be come up with a reasonable way to calculate your position submit a private ruling asking the ATO top address it, they'll either come back and give you additional guidance or say they are ok with that. Gives you a much more tennable position. There are myriads of reasons why people lose CGT records, this can actually be a huge issue when you inherit assets so the ATO are by no means unreasonable on the matter.

I do honestly feel for people in your position and I've tried to address that in my submission to the ATO about this matter, however as a tax agent I must also encourage people to understand and meet their obligations. While there are people like yourself who have a genuine problem there are also a number of people that merely can't be bothered going to the required effort. 

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Enthusiast

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This response seems to be a little better Daniel. I'm also not one to avoid my tax obligations or make up excuses. I'm here because I care and want to do the right thing. A majority aren't going to, and they would have no interest in posting here about issues. You can see them in forums.. on telegram chats etc. They're the majority.. I think they're foolish but they do raise good points.
It's common for people on here to take the "too bad so sad" approach, but all I'm suggesting is that in order to attract more tax revenue, make it easier. Tax on AUD in and out. Otherwise people (I'd suggest most) get trapped and end up at a loss because of the ATO obligations (if they can figure out what they actually owe). (I'm not one of those people).
You're right, in a way, that it is their fault. I'm coming at this in my view from a more practical approach (for both the citizen and the ATO). The problem is that most people don't think about all of these tax issues. Its an entirely new area for them to explore. It's unregulated, and maybe because of that it should be banned... or there should be major warnings on Australian exchanges about tax rules etc. As it is, people throw money into it almost as if gambling. I personally didn't put money on there as an investment, but more because I fear housing crash and currency crisis.

If I were the ATO, I'd tax based on fiat in and fiat out, as any other way overcomplicates it or makes it close to impossible to work out for the ATO/customer. I'm not sure what advantage is to be gained by taxing crypto to crypto either, and it could be argued that the ATO actually loses revenue due to this.

Again, cointracker doesn't work for most exchanges I use, or has limited functionality. Your clients must have used some of the main vanilla exchanges and not messed around too much in the wild (the exchanges like ED etc). Because each crypto often has its own exchanges initially, you find yourself hunting around for them... sometimes on exchanges that have limited English functionality. For me, this was fun, but honestly, some of where my crypto has gone is so far out there if I didn't say anything, it wouldn't be traceable. But then what's the point of that? I want to cash it out and buy stuff with it, so I eventually would need to let the ATO know (and would be punished for not letting them know earlier).
The exchanges log data differently, which is why sites like cointracker have limited functionality. They're helpful for some of the main sites. Also, for whatever reasons sites have started limiting API functionality for this. Importing .spv is a mess and doesn't work. You'd be better off doing it manually, one by one, but for some people this would take months.
As it is, i don't think there is a tool that will adequately assist people like me, but I'm open to suggestions. If you've gone deep into crypto, you've had to explore those kinds of sites inevitably as you want to buy coins before the mainstream catches on.

You mentioned trading shares or something on foreign exchanges. The difference I believe would be more in the lack of fiat link, the crypto for crypto trading, the lack of regulations/adequate record keeping, the extreme volatility, the ability for anyone to trade cheaply (so you no longer just have stockbrokers trained for it, but the general public).
I honestly still don't understand how I'm meant to adequately assess the value in AUD of some random coin that is traded on some foreign exchange for some other random coin. I can guess, sure, but my guess could be off by hundreds (which could result in variations of thousands), on each trade. I got into this to escape fiat, and that's essentially the point of crypto.. the difference in value between each exchange is often huge (maybe not so much anymore).
So if X is selling for X Eth, that Eth on that exchange might be worth say $350USDT. In Australia, that Eth is not worth whatever the AUD exchange of $350US is (and not close to say the coinmarket cap average value). Not even close most of time. The problem is that you buy your ETH in AUD, send it overseas, it loses value immediately in AUD, you'll then want to sell that for maybe Monero to buy whatever, then you'll send it to your wallet, which takes time and can result in price differences (which would be taxable because how can tell the difference between a trade and sending ETH half the time). From 9 months back if you use cointracker is it calculating the value based on what USD or AUD is worth today, or back then? Does it account for liquidity pricing differences? Where does it get its value of X from? Is it an average value from something like coinmarket cap? This could create problems. Do you use the ETH value of Monero, for that foreign exchange or use whatever ETH is currently selling for on an Australian exchange? Even you admit that in many ways you're making educated guesses.. which in my view is a good reason why you should only tax on cashing out, when you know for v sure what its worth after its long adventure in the wilderness.

Also, and this must be a common problem that I have been too stupid to work out. If you buy all your ETH at random times for different values, then pool it together overseas, how are you meant to know (or how can the ATO work out) which ETH you are using from the pool to buy other crypto tokens with? I would usually put in say.. 500-1000 a fortnight from AUD. Then send it to a wallet maybe. Then later on buy stuff with the ETH. So say I've got a pool of 10 ETH, from buying 1 ETH every week at different prices. If I buy now .7ETH worth of X and .7ETH worth of Z, which ETH am I using to buy them with? As that's a taxable event, I guess you're meant to just say that you're allocating the ETH from the purchase on 19/8/17 to the purchase of X. I'm sure this is a common issue. Just curious.



I think it's disingenuous to compare the trading of crypto with other trades in more traditional formats with relatively stable (for now) fiat currencies.

If I want to buy something with my crypto, i know that the purchase will be traceable, and that the best way to buy is by being responsible and paying my taxes. I know I can't get away with it. Tax when you take money out of the incredibly volatile crypto market or its inevitable that people are going to get hurt. Trading crypto is like the Shrodingers Cat dilemma. It's not really worth anything (in fiat) until the box is opened and you can sell into fiat.

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Megastar

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@DanielH wrote:

The ATO stance has been the same since at least 2014 , as have the rules for calculations.


If the ATO's stance on crypto-to-crypto transactions has been the same since 2014 they have done a very poor job of communicating it. The Tax Treatment of Cryptocurrencies guide that they released in 2014 did not make it clear that crypto-to-crypto transactions were CGT events. In fact, a section on Cryptocurrency to Cryptocurrency transactions has only just been added to the guide in the last few weeks. Not only that, but there have been people asking the question on this forum for months and a definitive answer from the ATO has been very slow in coming. There has also been a lot of conflicting information out there on the internet about this which hasn't helped either. The ATO bears most of the reponsibility for this for not making this position clear, particularly because, for the average person, taxing crypto-to-crypto is completely unintuitive, and calculating capital gains can be impractical because of the lack of reference to fiat and extreme volatility.

 

I went to see my tax agent late last year to ask about how I should handle my crypto holdings and it quickly became apparent that I knew more about the topic than they did. I got the impression that I was the first person to ask about it. So it is likely that even some accountants are going to be poorly prepared for the flood of crypto users/investors/traders tax returns for FY2017-2018.

 

At the very least, if the ATO aren't going to come to their senses and persist in regarding crypto-to-crypto exchanges as CGT events, there should be an amnesty for this financial year in terms of recording every crypto to crypto transaction (given they have only just added this to the guide), and practical advice provided on specific methods to value transactions which have no direct reference to fiat and which may change by 50% or more over a day.

 

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Megastar

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@DanielH wrote:

Every Crypto investor has been dealing with the same thing


I don't think that's true. There is a world of difference between the experienced or institutional investor, and the small-fry inexperienced "investor/trader" who fell into crypto almost by accident.

 


I have client's with over $1million in crypto investments and the software like cointracking works perfectly well for them, its actually able to deal with everyone of those events you listed.


How does it deal with exchanges that have disappeared or things like Shapeshift for which no transaction history is kept?

 

If you only deal with a couple of the major cryptocurrencies and stick with the mainstream exchanges then tools like cointracking.info can be useful.

 

Even then it's not perfect. I'm not a trader myself, but I have made a dozen or so crypto-to-crypto exchanges to purchase various cryptocurrencies to experiment with (I have an interest in smart contracts as a software developer) and as investments on Bittrex. For three of those, for some reason, in my transaction history the time is marked as "######" (i.e. unkown). I'm not sure how I'm supposed to get an accurate value for those. I can probably work out the date of the transaction from when I withdrew the currency from the exchange and use the historical average price for that date. But without the exact time the value might be +/- 50% from the reality given the volatility of the currencies involved. Is that going to be good enough for the ATO?

 

And that's just for a dozen or so transactions on a single mainstream exchange. I know of people who have made hundreds, or even *thousands* of trades on multiple exchanges over the year. What are they going to do?

 

If you've done anything exotic, and by exotic I mean use some of the more obscure foreign exchanges and altcoins, as many small time crypto "investors" have (because this is where BIG gains can be made), then cointracking is not going to be that much help.

 

It seems people think that because they forgot to plan ahead and keep the necessary records they should just simply be exempt or get special concessions.


I'm not sure why you think expecting tax rules to reflect practical realities is asking for "special concessions". I get it that you think cryptocurrencies should be treated like shares. But they are NOT the same thing.

 

Firstly, there are many more diverse ways to perfom crypto-to-crypto exchanges than with shares, some of which are completely automated and don't require even an account on an exchange. Secondly crypto-to-crypto exchanges are usually made with no reference to a fiat currency, unlike shares. Thirdly, cryptocurrencies are *used* as currencies, unlike shares. Finally, the volatility of crypto is unprecedented. Think of the most volatile stock you ever heard of, multiply that by a factor of 10 or more and you have *normality* in crypto.

 


In the event that records are unattainable for whatever reason the ATO would simply expect the income or loss still be declared using reasonable basis calculations,


The question then, is why can't we just do that in the first place, since that would be a lot simpler for everyone, including the ATO?

 

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Megastar

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@Daniel wrote:

Everyone just seems to be over complicating this matter. There are a number of software solutions that allow you to download your transaction history and it does the conversion for you.

 @DanielH

I disagree. It's actually the ATO that is overcomplicating the matter if they are taking the position that crypto-to-crypto trades are CGT events, and I don't think they realise what a nightmare they are creating, not just for taxpayers who have dealt in crypto, but for themselves when it comes to trying to audit the mess that will result.

 

The notion that you can "download your transaction history" is quaint, and might be fine if you've stuck to one of the mainstream exchanges, but what if you used Shapeshift, where no account is required to exchange between currencies and therefore there is no history to download? What about the foreign exchanges that don't keep complete transaction histories? What about those exchanges that disappeared in the last year?

 

Crypto should be subject to the same rules as any investment where the onus for record keeping is on the individual and being that there are viable solutions available saying its jsut too complex so I shouldn't have to fulfill my tax obligations shouldn't cut it.


I agree to a point. People should meet their tax obligations, but where I think we differ is in our opinion of how crypto should be treated. Some people, like yourself, seem to think cryptocurrencies are analagous to shares. While, superficially, there may be some similarities, there are some important differences, and, in my opinion, crypto is an entirely new kind of asset class which requires it own rules. Firstly, when shares are traded there is a notional, if not an actual, liquidation to a fiat currency that is then used to purchase the shares being exchanged to. With a crypto-to-crypto exchange that is generally not the case. If one uses Shapeshift, for example, to convert cryptocurrencies there is no reference to fiat at all. Secondly, whilst the ATO may regard cryptocurrencies as a CGT asset, they are *used* like a currency. So, exchanging one crypto for another is much like putting a $20 note in a change machine and receiving ten $2 coins.

 

If you exchange $1000 of Crypto A for $1000 of Crypto B you still have $1000 of crypto at the end of the transaction. So what exactly is the gain? If the ATO are going to treat a crypto-to-crypto transaction as a CGT event, then they had better explain WHY.

 

I rather like CryptoMess's analogy of Shroedinger's Cat in that crypto has no definite value until it is cashed out or exchanged for another asset type that links its value to fiat. It would be far simpler, and better, to treat all cryptocurrencies as one asset (the "CryptoSphere" if you like) and CGT events are only triggered when exchanging out of the CryptoSphere. I'm pretty sure that would be embraced by the crypto community and, dare I say it, would probably substantially increase the revenue to the ATO, as the alternative is only going to encourage non-compliance.

 


If you make a trade and fail to put aside the provision for tax on that trade, that's simply a bad investment decison. If someone buys shares makes a huge profit and reinvests that profit and the share market retracts and they do not have the funds to pay the tax from their CGT profit they are responsible for putting themselves in that position crypto is no different ...people need to start planning ahead not trying to make a poor me argument because their cicumstances aren't how they envisioned 


It's very easy for you to say that, but the majority of cryptocurrency users are not sophisticated investors/traders, and many would have never done any form of investment before, and some are probably not even aware that what they have been doing is "investing/trading" in the eyes of the ATO. And why would they be? As I noted above, cryptocurrencies are *used* as currencies.

 

Are you going to tell a 20 year old University student who purchased a couple of hundred dollars of crypto to play around with and then Shapeshifted it after it had increased 100-fold in value (which they may not have even be aware of) that they now owe the ATO thousands of dollars, even if the value collapsed after the financial year and they have nothing to show for it or pay the tax bill, and that it's all their fault?

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Enthusiast

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Thanks for your input Seti!

In my mind, there is no advantage for the ATO in taxing crypto-to-crypto, unless they're hellbent on punishing people for what is realistically unrealised gains. It's a common thing to see people write "it's not a gain until you've cashed out".

It really isn't that simple to work out tax owed, and to suggest that cointracker is the answer... not in many if not a majority of cases I can imagine.

It's frustrating to see blame placed on the average Joe when really, this issue of taxing crypto to crypto has guaranteed noncompliance (as shown by the .5% of people actually reporting crypto), setting people up for failure. It's inevitable and shows a lack of understanding for the reality of crypto. It guarantees a lot of people (I'd say a majority) will be caught out and end up losing money. I'm all for taxing people when they've had an actual gain in AUD. If someone makes 50,000 cashing out, absolutely they should be taxed.
But while it's in crypto, it really isn't worth anything (it is basically gambling). You could say the same about shares but crypto has extreme volatility (and far further removed from fiat). In crypto, we go through the equivalent of great depressions every 6 months, bear markets every fortnight. Crypto doesn't have a central bank to inject stimulus/autocorrect/artificially pump/control it.
... but this entirely new, disruptive field which is popular due to all the ways in which it is different from traditional banking/stocks etc, is to be compared to the stock market???


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Enthusiast

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Seti. I think we need to set up a group/forum separate from this site so we can get properly organised. This forum is hopeless, they're not really answering and if some random accountant does, it's usually a harsh response coupled with a complete lack of understanding as to the realities of crypto.
This is a mess.. any suggestions on setting up such a group?
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Devotee

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“ike putting a $20 note in a change machine and receiving ten $2 coins.”

It’s more like putting a $20AUD note into an change machine and getting $30USD in quarters.