While I'm on a roll getting quoted on the taxation and technology, the ATO has issued some guidelines around record keeping for cryptocurrencies which are onerous and unnecessary (and thus failing to comply with the taxpayers' charter).
Essentially, the tax office is asking taxpayers to record the Australian dollar value of any cryptocurrency transactions at the time that they occurred. This seems harmless enough because it is consistent with any other taxable asset.
But it is asking taxpayers to keep records that the tax office already has.
The tax office (perhaps in conjunction with Austrac) will of necessity be keeping copies of all the ledgers or all the major cryptocurrencies. This is not a particularly large dataset -- HPE or Dell could easily sell a single system capable of holding all this data and perform sophisticated analysis over it. If the tax office and/or Austrac weren't at least attempting to keep somewhat on top of the cryptocurrency transactions of criminal elements, then that's a major problem!
So, given that the tax office already has information about every transaction anyway (including when it happened, and the public wallet addresses involved in the transaction), why is it necessary for tax payers to do so as well?
Indeed, the missing piece of information that the tax office would really like is the association between TFNs (or SMSF ids) and public wallet addresses. So why not simply ask for this information? This would help the tax office in its investigations immensely, and creates a ready-made CGT record-keeping system for the taxpayer.
The simple way would be for the ATO to provide a web interface where tax payers could enter their public wallet addresses for each currency that they own together with the relevant TFN. A more sophisticated approach could be done by having the taxpayer complete a transaction on the blockchain to prove the association.
Having obtained this TFN-to-wallet address mapping, the tax office can automatically calculate the CGT applicable for the tax payer. In the same way that taxpayers can take advantage of a pre-filled tax declaration for the PAYG information provided by their employers, so too could all cryptocurrency transactions be handled the same way.
Note that this does not apply very well for Monero, but would be fine for Bitcoin in all its variants, ethereum, litecoin and all the other major currencies.
The advice the tax office is giving is simply archaic and utterly misses the opportunities of taxation paperwork simplification inherent in having a public blockchain.
Currency-to-currency transactions are even more problematic; the tax office can issue guidance here that would be quite straightforward and automatic, but instead relies on taxpayer estimation over matters which are ambiguous without guidance.
For example, how to handle a cryptocurrency fork? Consider the fork that created Bitcoin Cash. On August 1st 2017, suddenly every tax payer who previously had Bitcoin now also had bitcoin cash, and that bitcoin cash had a non-zero value. What cost base should be used for that? $0 because on September 30th Bitcoin Cash was just a concept, and worthless? Or should it be the value of bitcoin cash on its first transaction? Or should it be the value of bitcoin on the last common block? Or the cost base of the bitcoin when it was purchased?
All of these answers have serious accounting challenges, because in some sense they necessarily involve double dipping.
Associated with this is that there are low-profile forks that a taxpayer might only find out about much later: bitcoin gold for example. It's entirely possible that a cryptocurrency owner may discover that years after they have emptied a wallet -- and perhaps even trashed the original paperwork that they used -- that they may have significant quantities of wealth in a previously unknown fork of a wallet. The ethereum fork is almost old enough that this could be relevant soon.
Finally, since there is a real-time bidding system on many exchanges (e.g. bitcoin to ethereum was traditionally done this way) the actual price achieved or paid might be dramatically different to the published prices of that day. A taxpayer might have added a zero to an offer (and still had it accepted), or left one off (and sold very cheaply). This would not be reflected in any official price; but this is the kind of thing that the tax office could infer automatically from a system if TFNs were associated with wallet addresses.
So why isn't the tax office simply asking tax payers to match their wallet addresses with their TFNs and then telling the taxpayers how much to include on their tax returns? It is logically equivalent to having TFN matching with bank accounts and superannuation accounts (all of which already happens). This would be a much simpler system for both the ATO and tax payers.
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