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Know your client’s crypto or risk a blowout, expert warns
17 March 2023
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A crypto expert is warning accountants to ensure they know what their clients have been doing with crypto or else the scale of taxable events could catch them out.
Koinly’s head of tax Danny Talwar said understanding a client’s crypto activity was a critical first step when it came to returns involving digital assets.
“Get stuck into what clients are actually doing with crypto,” said Mr Talwar. “Really unpacking how they received it, what their intentions are to hold it, these help with determining what the tax treatment is, whether they’re running a business or not.”
Mr Talwar said diving into the specifics up front would also prevent a cost blowout for the client. Failing to do so might mean suddenly being handed thousands of crypto transactions to reconcile and an increase in the cost of service.
He said questions accountants should be asking included:
- When did the client receive the crypto?
- Why are they holding it?
- How long will they keep it?
- What will they do with it?
- Did they receive any income from it, such as airdrops and staking rewards?
- How much is it worth in Australian dollars?
- When did they sell or dispose of it?
“There’s a huge number of taxable events that you can generate just by trading in the crypto ecosystem,” he said.
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Clients should be aware of other taxable events for investors such as converting crypto to fiat currency, using crypto to obtain goods or services, or selling or gifting crypto, said Mr Talwar.
Presenting at the Australian Business Expo on Wednesday, Mr Talwar emphasised the current challenges when dealing with crypto.
“Pain points at the moment are around when to take market values, particularly around staking rewards, navigating decentralised finance, borrowing and lending – it is often unclear what the tax treatments are for those.”
The whole ecosystem around gaming was another problem.
He said these issues would be examined as part of an ongoing review by the ATO into crypto tax which is due to report in September.
The hope would be to provide a decisive framework for accountants to use that would make it simpler to answer questions such as when the market value from staking could be classed as derived, according to Mr Talwar.
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