Mistakes crypto investors make at tax time and why the ATO is watching

It comes as the Independent Reserve Cryptocurrency Index found that 54 per cent of Aussie investors wanted the Australian Taxation Office (ATO) to improve guidance.

Cryptocurrency is any form of digital or virtual currency that uses cryptography to secure transactions.

Cryptocurrency is considered an asset (like shares or property) in most cases rather than currency and it is taxed accordingly under capital gains.

It isn't regulated or centrally issued like traditional currency. But this doesn't mean that investments in crypto are tax free.

The most common use of crypto is as an investment in which case the crypto asset is a capital gains tax (CGT) asset.

If you acquire a crypto asset as an investment, transactions such as disposal or exchange or swap are a CGT event, and you may make a capital gain or a capital loss.

You can't deduct a net capital loss from your other income. But you could be eligible for a 50 per cent capital gains tax discount if you are an individual or trust and you hold crypto for more than 12 months before selling it.

Accountancy firm William Buck's Tim Lyford told ACM the biggest mistake he encountered was people not keeping "detailed and accurate records".

"Crypto can be quite complex and so we see people miscalculating the losses and gains ... all the time, often because they haven't kept all the records they need" he said.

If cryptocurrencies are sold or traded there's a need to calculate the difference between the selling price and the purchase price (cost basis).

Short-term gains (held for less than a year) are typically taxed at higher rates than long-term gains (held for more than a year).

"There are usually a lot of transactions involved," he said

Mr Lyford noted since the crypto boom of 2020-2022 people had "backed off" and many investors made losses although there has been a recent recovery.

He also warned the ATO was able to trace transactions through data matching programs.

Crypto Tax Calculator CEO Shane Brunette said people were "missing taxable events".

Investors should be aware of "what constitutes a taxable event," he said.

Common taxable events include selling cryptocurrency for fiat currency, trading one cryptocurrency for another and using cryptocurrency to purchase goods or services.

Mr Brunette warned all income "must be reported".

"This includes mining income, staking rewards and any interest earned from crypto savings accounts," he said.