Bonus: ATO Assistant Commissioner Tim Loh on why ‘it’s not a game of hide and seek’

Bryce: [00:00:15] Welcome to another episode of Equity Mates, the podcast that follows our journey of investing, whether you're an absolute beginner or approaching Warren Buffett status, our aim is to help break down barriers from beginning to dividend. My name is Bryce and as always, I'm joined by my Equity Mates Ren. How's it going? [00:00:28][13.6]

Alec: [00:00:29] I'm very good. Bryce excited to be here for this bonus episode of Equity Mates. We've done a few episodes on tax, but the questions keep coming thick and fast, so we thought we'd do another bonus episode. And we've got the top of Australian tax experts joining us today. [00:00:47][17.6]

Bryce: [00:00:48] That's right. We were joined by Tim Loh, who is the assistant commissioner for individuals and intermediaries at the Australian Tax Office. Tim, welcome. [00:00:56][8.7]

Tim: [00:00:57] Thanks. Thanks, Ren. Thanks, Bryce. It's great to be here with you guys. What are you guys going to carry in lockdown over in Sydney? [00:01:04][6.2]

Bryce: [00:01:05] Likewise. And same to all of our Equity Mates community as well. Hope everyone's doing well. It's great to have you with us. We can't say no when the calls are. So we're going to focus the next sort of 10 or 15 minutes on crypto and tax specifically and then touch on some common mistakes around tax time and a few tips for deductions as well. But I know that everyone in the Equity Mates community are doing their tax returns at the moment. And the question around how we think about crypto particularly keeps coming up. So given that Ren is trying to figure out ways to avoid tax. I'll let you kick it off [00:01:45][40.1]

Alec: [00:01:45] to I'll have you know, Bryce is completely off base there. But I guess if we if we start generally, you know, a lot of the questions that we get here at Equity Mates around cryptocurrency for a lot of Equity Mates, this is the first year where cryptocurrency forms part of their tax return. So I guess generally, what should all of the Equity Mates community know about the tax implications of investing in cryptocurrency? [00:02:11][25.8]

Tim: [00:02:12] Yeah, good question. Like many regulators around the world has had to respond to crypto and consider how to treat it under our existing tax frameworks. But one out there is that crypto is only taxable when you convert it to Australian dollars or even not even taxable at all. So it's meant to be one of the best. And the way we see cryptocurrency, it's looking an investment. So think of it like shares or ETFs. And so when you sell, sell, swap or exchange cryptocurrency, there are capital gains tax consequences associated with that transaction. [00:02:43][31.1]

Alec: [00:02:45] So, Tim, you mentioned this swapping cryptocurrency, and I think this is a common question and something that a lot of people might get wrong. Let's say I am swapping one cryptocurrency for another. So I've got some Bitcoin and I use the Bitcoin to buy Dogecoin is that is not in itself a taxable event. [00:03:05][20.2]

Tim: [00:03:06] Yeah, that's right. It is a taxable event. Ren. So you dispose of the Bitcoin through the Dogecoin, you're effectively disposed of one capital gains tax. That's it for another. So what we've done is effectively reset property, which has a value of money in return for your Bitcoin. And so what you need to do is effectively work out the market value of the Dogecoin at the time you exchange it and account for in Australian dollars. So depending on the price that you originally purchased, the Bitcoin will determine the effect effective capital gains. So if you bought crypto in April for 40 K and you sold at the age of 50 to the capital, gain would be effectively twelve thousand dollars. [00:03:45][38.9]

Bryce: [00:03:47] So, Tim, there are plenty of stories going around in crypto forums about the way in which cryptocurrency is or could be taxed, you know, the for personal use or hobbies traded as a capital asset or maybe traded as a currency. Given that we've got you here to settle this debate in the eyes of the how is crypto taxed? [00:04:06][18.8]

Tim: [00:04:07] Well, generally speaking, you know, we think of crypto as investments. As I said before, so we regard as a capital capital asset for tax purposes. And so, typically speaking, capital gains tax consequences arise out of it, but really depends on the facts and circumstances. So, as I said before, if you acquire the crypto as an investment, then CGT consequences would apply. But look, if you if you will say, for example, in the business of trading in crypto currencies, you know, the treatment will be different. So you treat it as income and potentially is trading stock and so different tax outcomes apply there. So if if you say trading in it, you wouldn't be entitled to things like the capital gains tax discount. [00:04:46][39.2]

Alec: [00:04:47] Hmmm, I think it's important to note that when you talk about capital gains tax consequences, it's important to keep in mind that if you lost money on crypto, which we know a lot of people have, yeah, it's a similar treatment as shares and you can claim that capital loss. So use it to your benefit. [00:05:07][19.4]

Tim: [00:05:07] That's right, Ren. So you can offset against other cryptocurrency gains that you made during the year. And you can also offset against any capital gains that you might have made in relation to your shares or ETF that you disposed of during the year as well. So you said exactly right. You can use that to your benefit as well. [00:05:22][14.8]

Alec: [00:05:23] Now, Tim Bryce has slandered me at the start of this episode and said I wasn't thinking about paying tax on my crypto. I don't know that I'm holding long term and has never sold it, but there are definitely people out there that might think that the ATO won't know if they are in crypto. You know, it's in the name. It's it's encrypted. It's it's hard to track. What message would you have for people who aren't thinking about reporting cryptocurrency gains in their F.I.? Twenty one tax returns? [00:05:57][33.9]

Tim: [00:05:58] Look, what I'd say is this. This isn't a game of hide and seek, you know, so wallaby's a cryptocurrency, operates an anonymous digital world really closely track it and how it interacts with the real world. So we'll get data from banks, financial institutions and the cryptocurrency exchanges and we follow that money trail back to taxpayers. So we've got a data matching program with a number of cryptocurrency exchanges, which we've extended it for a couple of years. Actually, we've extended the twenty to twenty three financial year and using that data matching protocol we've got, we collect information on cryptocurrency accounts, transaction information from all of the various cryptocurrency exchanges. So this year we went to 100000 taxpayers to remind them of the obligation of this taxon. So we want to return to one of your books, but also we need to lodge a tax return through my tax or using registered tax agent. Five hundred fifty thousand people will receive pop up messages just to remind them in real time that they've got to put in the cryptocurrency gains and losses, whichever they've got in their tax return. So we're interested in both the gains and losses as well, not just the not just the gains. [00:07:07][69.5]

Alec: [00:07:08] Well, I think Bryce is breathing a sigh of relief because he thought he got a personalized letter from the ATO. [00:07:13][4.9]

Bryce: [00:07:15] No, no, no, that is not true. I am one of the lucky 100000 who did receive a broad statement letter saying that I have been trading crypto and to check if I've had any gains or losses. But yeah, I think it's unavoidable to try and get around this. And as we say on the show many times as well, you know, you paying tax is actually a good thing at the end of the day because you're making cash. [00:07:42][26.6]

Tim: [00:07:42] So that's exciting. And the other thing that people forget is, you know, it pays for government services like schools and hospitals. So, you know, sometimes they forget to make that connection. But, you know, without tax, you don't get those kind of things. But one other point I wanted to raise with you guys was just around, you know, why we had these data matching protocols. Obviously, there's an element of making sure that people who aren't doing the right thing, we catch. But also there's the other element is really trying to educate people around their cryptocurrency obligations. So obviously, coming on to your wonderful podcast is a great opportunity to talk about crypto. But also we've got some fact sheets that we've produced and got heaps of information on our website that listeners can check out as well. [00:08:24][41.9]

Bryce: [00:08:25] Not if you're interested. Head over to the website and check it out. So let's move on, Tim, because while we've got you here, we'd love to also just chat more broadly about tax and tax. Time can be quite confusing for a lot of people. Although granted, the the new, I guess, way of doing things through the government portal now makes things very easy. So we'd love to pick your brain about the common tax mistakes that investors can make and often do just so that we can avoid them ourselves. So what are some mistakes that we should be mindful of? [00:09:03][37.8]

Tim: [00:09:03] Yeah, look, look, there's there's a number of mistakes, but the biggest one really is around recordkeeping. I think that's the thing that we find. People make a lot of mistakes and that applies to, you know, things that you're doing in relation to investments. But also just, you know, I think climbing kind of work related expenses and the like. It's really important to have records so receipts and the like. But when it comes to investments, I think what we see a lot of people doing is that they don't have those records. So they can't track, for example, they carry forward losses, which makes it difficult for them to offset against future capital gains, incorrectly calculating their capital gains because the cost base them got the growing cost base that they've used. So my advice to people would be just making sure that they really they really got the. Records in place and, you know, some great crypto accounting software out there that people can use in terms of other issues, that we see people making mistake information that crypto spaces is just in relation to trading versus investment. I think a lot of people think the trading when really they're just investors. So that's something that people should really consider thoroughly. Suspects arrested, tax agent, if you if you're not sure about whether you're an investor or a trader. And that obviously plays out in terms of some of the tax issues that come out of that as well. [00:10:19][76.5]

Alec: [00:10:20] But, Tim, if crypto is the number one topic in the Equity Mates community when it comes to tax, I would have to say number two is around deductions. There's a there's a lot of confusion around what's deductible, what's not deductible, especially as retail investors. You know, most of our community have nine to five jobs and are investing on the side. And so there's a lot of confusion about what counts as an expense. So let's go through some common areas that we get questions about. Let's start with one that has a pretty simple answer. Brokerage deductible are not deductible. [00:10:57][37.1]

Tim: [00:10:58] It's deductible. But in the sense as part of the forms part, the cost base, when you when you when you sell or swap exchange the krypto, you can claim a deduction. But through the cost base, then an outright deduction under the typical tax provisions. [00:11:13][14.5]

Bryce: [00:11:13] So then, Tim, what about interest on margin loans? [00:11:17][3.2]

Tim: [00:11:18] Yeah, look, that's a really it's a it's a tricky question, right? So if you're using it like a Holden household strategy would be a krypto, you probably can't claim a deduction for the interest because you're not actually earning what I would say income, because what you're trying to what you're getting is, again, a capital gain from the the investment of the cryptocurrency. Now, if you say, for example, taking the crypto and earning Steichen rewards, that's a little bit of a different story. So you are deriving income from that. And so they if you are incurring interest on a margin loan to acquire that crypto, you can get a deduction for that. [00:11:53][35.3]

Bryce: [00:11:53] What about if it was for stocks? [00:11:55][1.4]

Tim: [00:11:57] How do you mean? [00:11:57][0.2]

Bryce: [00:11:58] Like if I were to take a margin loan for a share portfolio. [00:12:00][2.2]

Tim: [00:12:01] Yes. If a share portfolio. Again, it's one of those things in a typical share portfolio, if you're investing in some blue chip stocks, you probably earnings and dividends out of that. So in that case, again, you're earning income in a tax sense and so you can claim a deduction for the interest on your margin loans. Similarly with ETFs, again, ETFs deriving dividends and interest income from the ETFs. Again, you can find a deduction for that interest. [00:12:23][22.0]

Alec: [00:12:24] Just another reason for Australians to love dividend paying stocks. [00:12:27][3.4]

Tim: [00:12:29] That's right. [00:12:29][0.5]

Alec: [00:12:31] So, Tim Oregan, this is a one that we get a lot of questions over and I actually don't know the answer to this one. What about information and news? News sources? So let's say I, as a retail investor, subscribe to the Financial Review. Is that a cost that's deductible in another? [00:12:49][18.5]

Tim: [00:12:50] It's hard to kind of give you a black and white answer Ren. It really depends. So actively managing your investment. Absolutely. You can claim the AFAS. You probably can't claim the Sydney Morning Herald. But if I can but if you like, say, you passively investing, you probably can't do that because you're just not actively investing in the asset. Something that I also wanted to mention was just a reaction to financial adviser fees as well. So if you are incurring financial adviser fees in terms of maintaining your portfolio, whether it's a crypto shares or ETFs, you can claim a deduction for that, but you can't claim the deduction for setting the thing up. [00:13:28][37.4]

Bryce: [00:13:28] Yeah, right. And then, as you mentioned, Tim, keeping track of records and and, you know, cost base and that sort of stuff is very important when it comes to tax time. So what about climbing those sorts of costs when it comes to platforms like share site that track your portfolio or subscriptions to other platforms that helps in that space or even fees that you might attract through brokerage accounts? [00:13:56][27.9]

Tim: [00:13:57] Yeah, for all those types of cost, Bryce similar to brokerage fees, those platform costs and those costs associated with transferring from the into the wallets, they typically go to your cost base so you can claim deduction when you're when you're doing the disposal, whether it's on the social exchange of the crypto. So you can kind of deduction, but it's a bit different to, you know, the interest deductions. [00:14:20][23.6]

Alec: [00:14:21] Well, Tim, we want to say a massive thank you for joining us today. I think I'm sure there'll be more questions that come out of this, as they always do. And as we always say on the podcast here, don't take financial advice from a podcast, get professional advice. And I think we can twist that here. Don't take tax advice from a podcast. If you're unsure, speak to a professional, I guess, as a final question, if people are. Equity Mates community have decided that they want to get professional help to prepare their attacks this year. They're uncertain about their krypto or anything else. Do you have any advice for people in terms of finding a good tax professional? [00:14:58][37.2]

Tim: [00:14:59] Yeah. So, look, I think the key thing to remember here is firstly, I would check the website first to see a bit of an understanding of what you're looking at. I think that's always good to be knowledgeable. We don't have to do with the tax returns yourself. But if you are looking for a registered tax agent, the tax but is board website has a list of all the registered tax agents in terms of who is registered as a tax agent and making sure that you use a registered tax agent, not someone who isn't registered. But, yeah, I would I would say my first advice would be to check out our website, get of get some background information as to what you need to and what the tax potential tax outcomes are. And then you've got your phone when you go to the taxation. [00:15:37][38.0]

Bryce: [00:15:38] Nice. Well, thank you, Tim. We've now got a direct line into the ATO. So should our community have any more questions? We're going to send them straight through to you. And you can you can take them because as Alex said, we this time of year always getting swamped with tax related questions. So hopefully this has been able to certainly shine a light on how to treat crypto at a high level. But as Alec and you also alluded to, Tim, make sure you speak to a professional for your certain circumstances. But as always, great to have you on and we appreciate your time. [00:16:13][34.5]

Tim: [00:16:13] Well, thanks, Bryce. Thanks, Ren. Take care of yourselves. [00:16:15][1.5]

Alec: [00:16:15] Thanks. [00:16:15][0.0]

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