I owe tax on crypto I no longer have. What now?

Why you owe tax on money you no longer have

The problem is timing. CGT does not care what the crypto is worth today. It looks at each disposal, and a disposal is any time you sell for dollars, swap one coin for another, spend it, or gift it. Each of those events produces a gain or a loss in the financial year it happened.

The common story runs like this. In year one you swap coin A for coin B at a big gain. That gain goes in the year one return, whether or not you cashed out. In year two coin B collapses, or the exchange freezes, or you sell at a heavy loss. That loss belongs to year two. The ATO's rules only let a capital loss reduce capital gains in the same year or later years. There is no carry back, and a capital loss cannot be deducted from wages or business income. So year one's tax bill stands, and year two's loss sits waiting for a future gain that may never come.

Two details help at the margins:

• If your crypto was genuinely lost or stolen, or a private key is gone for good, you can claim a capital loss in the year of the loss if you can show you owned it. That still only offsets gains from that year on.
• If an exchange has gone into administration, the loss is usually only crystallised when the administration ends or the claim is settled, not when the exchange froze.

The ATO receives transaction data from Australian exchanges, so it will usually already have a picture of your disposals. If the assessment looks wrong, for example because the cost base ignores what you paid, you can amend the return or dispute the assessment rather than the debt.

Your options for the debt

1. Check the number first. Crypto assessments are often based on exchange data with no cost base, so the gain is overstated. Rebuild the history with a crypto tax tool or an accountant before you pay a cent. Then lodge any missing returns, because the ATO will not set up a plan around unlodged years.
2. Payment plan. This is income tax debt, so a plan of up to $200,000 can be set up online. Choose an instalment you can keep, because a defaulted plan makes the next one harder to get. The payment plan guide covers the details.
3. Interest remission. GIC is currently 11.43% a year, compounding daily, and no longer deductible. A collapsed exchange, a frozen account or a genuinely misunderstood rule can support a remission request, particularly for the period before you knew the debt existed.
4. Hardship release. Because this is income tax, an individual can apply for release on serious hardship grounds. The test is whether paying would leave you unable to afford food, housing, medical care and other essentials. The ATO also looks at how the debt arose and whether the circumstances were within your control, so be straightforward about the trading history. See what counts as serious hardship.

Selling what is left to pay the bill

If you still hold some crypto, selling it to pay the ATO is a disposal in its own right. If you sell at a loss, that loss can offset any other gains this year and then carries forward. If you sell at a gain, it adds to this year's tax, so set that amount aside. Either way, keep the records: the ATO will see the sale.

What to do next

1. Rebuild your full transaction history with a crypto tax tool or an accountant and confirm the assessed gain is right before paying anything.
2. Log in to ATO online services, note the balance, and set up a payment plan online at an amount you can keep.
3. Call the ATO on 13 28 61 to ask for GIC remission, and if paying would leave you without essentials, ask about an application for release on hardship grounds.

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