Capital gains tax – Crypto Assets and Real Estate
As we approach the end of the 2022 financial year, the ATO has recently announced that there will be more focus and resources put on scrutinising taxpayer’s reporting of capital gains tax. The ATO has identified that this is one area where taxpayers make the most mistakes, either intentionally or not. Data matching capabilities have been improved to ensure the Australian Tax system is robust and fair.
Crypto Assets – This includes anything on the blockchain ranging from Crypto Currencies and Non-Fungible Tokens (NFTs). With Crypto being increasingly popular this past year, the ATO is expecting a higher number of taxpayers reporting capital gains and losses this year. Even though Crypto transactions are claimed to be anonymous, the ATO is in contact with most major exchange platforms and can use data matching to identify inconsistencies in tax returns.
Tax on Crypto (and most capital assets) must be reported when a disposal of the asset occurs. This means you need to report the capital gain or loss when you sell the tokens, and when you trade it for another token on the platform. The calculation of capital gains on Crypto is like other capital assets such as shares, and they are eligible for the 50% capital gain discount if held for more than 12 months.
The ATO also reminds taxpayers that capital losses (such as Crypto Investment Losses) cannot be offset against ordinary income such as wages and salary. Capital losses can only be offset against capital gains and can be carried forward indefinitely to future years.
Real Estate – With property prices on the rise this past year, the ATO is also expecting more capital gains to be reported on sale of real estate. Keep in mind that main residence properties are exempt from capital gains, but it does get complicated when the taxpayer moves in and out of the property over the years.
For disposal of Australian property where the contract price is over $750,000, Foreign Resident Capital gains Withholding (FRCGW) of 12.5% applies to the vendors. This will apply even if the vendor is an Australian tax resident – unless a clearance certificate is provided. This means that the purchaser will withhold 12.5% of the purchase price and pay it to the ATO. Upon lodgement of the vendor’s following year tax return, the withheld amount will be used as a tax credit and any surplus will be refunded in the tax return. For this reason, it is recommended that a clearance certificate is obtained prior to settlement to avoid unnecessary delay of funds. It is the vendor’s responsibility to obtain the clearance certificate and provide it to the purchaser at or before settlement. Additionally, where there are multiple Australian resident vendors disposing of the asset, each vendor should apply for a separate clearance certificate in their name only. Only Australian Tax Resident entities can apply for the clearance certificates, and they are valid for 12 months.
The above information serves as a reminder when considering the tax implications of capital assets. As always, Venture Private Advisory will ensure your tax returns are completed as accurately as possible with the information provided to us.
By James Yong – Accountant – Venture Private Advisory