Apply first principles to crypto assets

cryptocurrency assets tax

First principles should be applied to cryptocurrency assets to ensure they are recognised and receive the proper tax treatment.

The ATO has recommended advisers apply first principles to the treatment of their clients’ transactions involving cryptocurrency to ensure the proper recognition and tax treatment of these assets.

Speaking at last week’s Accounting Business Expo in Sydney, ATO risk and strategy individuals assistant commissioner Adam O’Grady told attendees: “When you’re working with your clients or trying to work out how would the tax apply in this situation, what my recommendation is try and bring it back to first principles.

“[That means] how would this transaction look in a pre-crypto world [and] what is the equivalent in the financial markets you already know, and the financial products you already know well, and what is the tax treatment there.

“Nine times out of 10 the tax treatment is exactly the same.”

O’Grady pointed out advisers bare a great responsibility in assisting their clients to manage these types of assets and their knowledge of them must be sound.

“If there is one takeaway [message] for all of you, it’s really to probably ask yourself a question: are you equipped to have the conversation with your clients about their cryptocurrency transactions?” he said.

“If you’re not, now is a really good time to start educating yourself and educating your clients for the future because the ATO, we are changing our footing on this and we’re going to become much more active in this space.”

A fundamental understanding of the asset that has been purchased remains paramount for investors and their advisers with regard to cryptocurrencies, he said.

“Given the general principles of some of the things we’re seeing, it’s important for you and your clients to actually understand what those assets are, why they were purchased and what they are being used for,” he noted.

“The key thing that we’re seeing, though, is people not understanding what it is that they have actually purchased. Did they purchase a coin? Did they purchase the right to obtain a coin?”

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