Cryptocurrency and tax: could you end up paying the ATO more than you earned?

As tax time approaches in Australia, cryptocurrency investors have been warned to begin working out what they owe.

Some lessons can be drawn from the recent US tax season, where some enthusiasts found themselves with a tax bill that exceeded their earnings after the recent crypto market crash.

Mark Chapman, director of tax communications for H&R Block, told Guardian Australia the company was expecting thousands of clients seeking help with their crypto investments this year, adding they tended to have at least some knowledge of their tax obligations.

But he is concerned about those who might not be aware of what they owe before finding themselves in the sights of the Australian Taxation Office.

You can use cryptocurrency to pay for personal use of goods or services up to $10,000, such as for a holiday or a car. But Chapman warned the ATO would be closely scrutinising these sorts of transactions to determine whether the end purchase was the sole reason for buying cryptocurrency.

Cryptocurrency transfers are taxed at the time they occur, so even if the currency has lost value you will owe tax on the amount exchanged or cashed out.

Chapman said one issue that the federal government should consider as part of the Treasury review of the legal framework around cryptocurrency is whether its tax treatment is the right fit.

Chapman said some clients would come in with statements that included hundreds of lines documenting purchase and sale of crypto assets, and the capital gain has to be calculated on every single transaction.