How Does The ATO View Crypto Asset Wash Sales?

  • March 3rd, 2025
  • 1 min read
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The Australian Taxation Office (ATO) takes a firm stance against crypto asset wash sales, viewing them as a form of tax avoidance. A wash sale typically involves selling cryptocurrency at a loss just before the end of the financial year and then quickly reacquiring the same or substantially similar assets. This practice is often undertaken to artificially create capital losses to offset gains or reduce tax liability.

ATO's Definition and Detection

The ATO defines a wash sale as a transaction done for the deliberate purpose of realising a capital loss and obtaining an unfair tax benefit. Unlike some jurisdictions, the ATO doesn’t specify a set time frame for wash sales; instead, it focuses on the taxpayer’s intent.

To identify wash sales, the ATO employs sophisticated data analytics, accessing information from crypto asset exchanges and share registries. This allows them to scrutinise transaction patterns and detect suspicious activity.

Consequences of Engaging in Wash Sales

Taxpayers found to be participating in wash sales face serious consequences:

  1. Rejection of capital losses claimed in tax returns

  2. Potential compliance action by the ATO

  3. Additional tax charges, interest, and penalties

ATO's Warning to Taxpayers

The ATO has explicitly warned Australian crypto investors against engaging in wash sales. Assistant Commissioner Tim Loh emphasized, “Don’t hang yourself out to dry by engaging in a wash sale. We want you to count your losses, not have them removed by the ATO.

Legitimate Trading vs. Wash Sales

It’s important to note that not all instances of selling and quickly reacquiring crypto assets are considered wash sales. The ATO recognises that some cases may result from rational investing decisions driven by market changes or shifts in investor sentiment. The key factor is the intent behind the transactions.

Conclusion

Australian crypto investors should be cautious when trading near the end of the financial year. To avoid potential issues with the ATO, it’s advisable to consult with a registered tax professional or refer to the ATO website for guidance on crypto asset taxation. Remember, if a tax minimisation strategy seems to good to be true, it probably is.