HAY, Mr Matthew, Deputy Commissioner, Strategy and Architecture, Australian Taxation Office [by video link]

O'GRADY, Mr Adam, Assistant Commissioner, Risk and Strategy, Individuals and Intermediaries, Australian Taxation Office [by video link]

WOOD, Ms Hoa, Deputy Commissioner, Individuals and Intermediaries, Australian Taxation Office [by video link]

[14:11]

CHAIR: I now welcome the Australian Taxation Office via video conference. Thank you for your time. Information on privilege and the protection of witnesses and evidence has been provided to you as part of your invitation to appear. I remind senators that the Senate has resolved that an officer of a department of the Commonwealth or of a state shall not be asked to give opinions on policy and shall be given reasonable opportunity to refer questions asked of an officer to superior officers or to a minister. This resolution prohibits only questions asking for opinions on matters of policy and does not preclude questions asking for explanations of policies or factual questions about when and how policies were adopted.

We will jump straight into questions. The position that has been put by the community is that, where there is a digital-asset-to-digital-asset transfer and that triggers a CGT event, that is impeding the industry, utility and choice. The industry would prefer to have a mechanism where, once a digital asset is transferred to Australian dollars, that would become the CGT event. That's the proposal that the industry is seeking. Could we get your advice and wisdom on that?

Ms Wood : If you look at the current legislative framework that we are working within, you can see that we have published some clear guidance around the treatment of digital assets or digital currency in particular. We focused on Bitcoin at the time. I think we issued the advice in 2014. Under the current legislative scheme, it is treated as a capital gains tax asset, and so, where you do exchange digital assets with each other, it is like a barter transaction. That will remain the case, I suppose, under the current legislative scheme that we've got, and we've provided much guidance around how to calculate that. We take a lot of steps around educating taxpayers about the implications of that. We take an opportunity to do that early in the piece, so that they are able to keep the right records to calculate the right gains and losses.

CHAIR: So the position is: if I want to open up an account with a digital currency exchange, and I want to buy some bitcoin and sell that, that's a CGT event if I've made a gain—right?

Ms Wood : Yes. It's similar to share trading—similar to an account with a share trader.

CHAIR: Yes, it's similar to share trading. So, if I wanted to sell that bitcoin and buy some ether, it would be like selling BHP and buying Rio?

Ms Wood : Yes.

CHAIR: It would be a CGT event. I'm not putting forward a position, myself, as chair, and I'm certainly not speaking on behalf of the committee. I'm just putting to you the position that has been put consistently by the industry: that that is not a desirable approach, and that the better approach would be to have the CGT event happen when the money or the value moves back to Australian dollars after the transaction. So do you have any advice on that?

Ms Wood : I think that probably strays more into questions of policy as to whether or not that's appropriate. Under the current regime it is treated similarly to share trading, as we said before. I think it's important to note that there are tax consequences for foreign currency transactions. It's not tax-free if there's an exchange of foreign currency for Australian currency; there are still tax implications that come out of that transaction as well. I think, under the current legislative scheme that we have, that's the tax treatment, which is similar to shares.

CHAIR: This may be a question for Treasury, but we've already had them and I forgot to ask them, so maybe you could take it on notice. How much CGT is being collected on digital assets?

Ms Wood : In terms of cryptocurrency? I might pass to Adam O'Grady. I don't know that we have accurate figures for you, but we can give you an outline of how we're actually managing responsibilities around disclosing gains and losses in trading cryptocurrencies in the current regime.

Mr O'Grady : I don't know that we will have the exact figure. I don't have one with me today, but we can take that on notice and come back to you. A lot of what we have been doing in this space—and it's why I mentioned this earlier—is trying to make those who I'll call the mum and dad investors aware of their obligations. Those heavily involved in the industry obviously pay close attention to the tax regime that we have on digital assets, but, with the explosion in popularity of them at the moment, really our focus has been on letting the small-time investors understand that there are actually tax consequences of this. So there's lots of advice and guidance to these taxpayers, and through our online lodgement platforms such as myTax and our agent software we're actually prompting people, saying: 'You've traded in crypto; there are tax consequences of this. These are the sorts of things that you need to do to calculate that gain.' But it is under the existing legislative framework.

CHAIR: So how much has been collected, in a broad sense?

Mr O'Grady : I'd need to take that on notice.

CHAIR: Yes, can you take it on notice. Also, do you think there's a high level of compliance?

Mr O'Grady : I think, overall, there's actually just a lack of understanding of how these interact with the tax system, which is why we've increased a lot of our public advice and guidance in the last couple of years. We've had formal rulings for some time, but we've gone out and created more streamlined fact sheets, which we did this tax time as part of our media campaign. We've put out other messages to the community to spread that information about what they're expected to do if they're investing in cryptocurrency, including what the record requirements are.

CHAIR: So you think there is a lot of noncompliance at the moment, do you?

Mr O'Grady : I think there's a lack of understanding, not willing noncompliance. People just don't know what they don't know. You buy a crypto and exchange off that. At the moment, you trade that multiple times throughout the year. That is all a single CGT event under the law. When it comes to reporting that on the tax return—

CHAIR: Well, they all are, right?

Ms Wood : They all are, yes.

CHAIR: At the moment, everything is. If I trade it five times, or if I sell it five times for a profit, that's five CGT events, right?

Mr O'Grady : Correct.

Ms Wood : If we go back to the share-trading example, there might be some people who transact in such a regular way, treating it as a business—similar to what you'd look at in terms of the features of someone's share trading—that it brings it onto what we would call a revenue account. So that is more in alignment with the treatment that has been represented in other submissions, as you've outlined at the start, and you can calculate your gains and losses, and that becomes a revenue account outcome for you, which is similar to share trading. So we see it as very similar to that. The education piece—

CHAIR: Could you provide some other information on notice about that, because I think that would be quite useful?

Ms Wood : Sure.

CHAIR: I don't want to put you a difficult position now in the committee. If you could provide that in writing on notice, that could be useful. The other question I have is on these, I think, 400 or 600 digital currency exchanges which are registered with AUSTRAC. Do you communicate with these organisations? Do you provide them with information for them to pass on to their clients?

Ms Wood : Yes, we actually do quite a bit of work. I'll let Adam give you a bit more detail about it. We also have some information exchange protocols with some of the exchanges so that we can collect information, which allows us to be a bit more targeted and deliberate in our attempts to educate. We get a bit more information about who has actually been trading so that we can reach out to them and provide them with that information as they need it. We have been working with them for quite some time on educating their customers about the tax consequences of trading in digital currencies. I don't know if Adam wants to add any more to that.

Mr O'Grady : I will just add that, in addition to that guidance that we are providing to those digital service providers to inform their clients, we work with a number of them to acquire their data. This is an actual record of the Australian based exchanges so we can see those individuals—or not just individuals but any entity—that are trading cryptocurrency through those exchanges.

CHAIR: So you get the Australian data, but, unless you've got some sort of agreement with the IRS, for a US based organisation you wouldn't get anything.

Mr O'Grady : That's correct. I can't force an American company to give us that data. We do have access, however, through some of our existing data exchanges internationally, such as the Common Reporting Standard and some of the AUSTRAC information as well, where people move between a digital currency and a fiat currency. Separate to that, there is work that the ATO is participating in with the OECD to look at actually bringing digital assets and digital currency into that Common Reporting Standard as well, which would give us visibility through those member countries to actually see Australians' transactions from overseas.

CHAIR: My last question gets more into the policy space, but I will ask you to take it on notice if you can. Do you have any information about how the CGT-like activity is treated offshore in the US, Singapore and the UK and whether or not there are, as you say, share-trading-equivalent tax arrangements? Any information you could provide to the committee on that would be useful. I know you probably talk to Treasury about that, and that's all good. I forgot to ask them good questions, so I'll ask you.

Ms Wood : Yes, sure. We can take that on notice and get back to you.

CHAIR: Okay. Senator Smith, do you have questions? No questions. Senator Scarr?

Senator SCARR: No questions from me, Chair.

CHAIR: Okay. There you go. Thank you very much to the tax office for your time.

Committee adjourned at 14:25