Davidsons Tax and Business Services Director Kylie McEwan recently joined host Rob Cameron on 94.7 The Pulse to talk all things crypto – how it’s taxed and what you need to consider before investing.

Check out the audio recording or read the full transcript below. 

Rob Cameron:     Station sponsor Davidsons Accounting are regulars on this show. We have lots of weird and wonderful conversations, and I don’t reckon the conversation is going to get any weirder than this one today. Kylie McEwan from Davidsons is kind enough to join us. Kylie, good morning and welcome.

Kylie McEwan:     Morning, thank you for having me!

Rob Cameron:     This is your first time on, we’re looking forward to a chat. You look excited and ready for action!

Kylie, let’s find out little bit about you before we get into the subject matter. Obviously we’re very very happy to have Davidsons as sponsors, and you’re working in the organisation.

Accountancy, a lot of people regard it as boring. You’ve been doing it for a while. Numbers, have they always intrigued you?

Kylie McEwan:     Not necessarily numbers as such. I think a lot of the times when you say you’re an accountant, people think you must be great with numbers, I will put my hand up and say I’m not necessarily. For me, it’s more about supporting people, helping people, understanding tax legislation and rules and working out the best outcomes for people. So that’s probably what’s always intrigued me and kept me passionate.

Rob Cameron:     And as you say, you’ve been with the firm a long time, giving a lot of advice and guidance to people. I imagine in amongst that there’s good days and bad days like all other jobs, but do you tend to have more good ones?

Kylie McEwan:     Yeah, definitely. I’ve been a partner and a business owner at Davidsons for a number of years now, so my journey’s been 25 years in the making. I’ve probably reinvented my role three or four times. So, while I’ve been at the one place, I’ve had the chance to do a whole heap of different jobs and work with different people, and it just means that every day, I get to go in and make a difference.

Rob Cameron:     Isn’t it a privilege that you can spend a lot of time under the same roof but in different roles, reinvigorating yourself? Now Kylie, cryptocurrency. The last time Michael Rebula from Davidsons was in, crypto came up in conversation, and I suggested to him that it’s something we should learn more about. The company has decided that you’re the person to come in and talk about it.

Crypto is an interesting thing – we don’t know much about it. The organisation that you work with probably doesn’t know much either, but you’ve got to be involved in a little bit of guidance. Tell us what you know about cryptocurrency and how much of it is operated in and around Australia.

Kylie McEwan:     Sure, well I don’t know if I can comment on how much is operated in and around Australia. Certainly a lot of people use it, some for personal, some for business, some to invest, some to trade. Generally crypto is a virtual or digital currency ultimately, that’s what it is in a nutshell. It’s not centralised or governed by any particular country.

We’ve got the Aussie dollar, which is governed by Australia, but crypto is decentralised, so no one necessarily governs it. It’s not tangible, obviously; you can’t hold it and use it. And I think the thing that I know the most about it is that a lot of people don’t know how cryto is taxed. They’re very surprised when they find out that what they’re using, even if it’s to buy groceries, may actually have a tax implication.

Rob Cameron:     Yeah, that’s the interesting part of it. And when you said you can’t actually touch it or feel it, I was thinking in my mind that a lot of people invest in gold. Now when you invest in gold, you don’t actually go to a shop and buy gold and take it home and put it in your cupboard. So what’s the subtle difference between gold as an investment as to cryptocurrency, if there is any difference?

Kylie McEwan:     Well, I think there’s still a level of tangibility to gold, it’s somewhere. Crypto isn’t. I don’t really know the ins and outs of how it’s actually created, but it works on a blockchain-type system, So it’s just transactional data that’s kept; it can’t be manipulated or taken, etc. You can actually use crypto to buy things, whereas with gold, you can’t necessarily unless you sell it and turn it into money. So that’s probably where there is a subtle difference from that perspective.

Rob Cameron: So, with crypto, you say you can use it to buy—obviously, not everyone would accept it, but are there some businesses who will happily accept it as a tradable form of goods?

Kylie McEwan:     Yes, certainly, there are some businesses. We don’t necessarily deal with any, and there are probably more offshore than in Australia, although some in Australia will. There are some transactions that you can only purchase with crypto.

Rob Cameron:     Now, the tax implication is interesting. There’s the risk involved. A lot of people would probably invest in shares or gold and when they do that, they would be doing it to buy it at a price and sell it at a higher price at a later time. There’s a profit made and taxation implications.

So from your point of view as an accountancy firm that’s guiding and advising your customer, is it as simple to deal with as a share portfolio or a gold transaction as far as the taxation implications?

Kylie McEwan:     Generally, yes, and I think that you’ve actually hit the nail on the head there around where the confusion is.

So the way the tax office treats crypto from our perspective is that it’s like an investment, it’s property, it’s not currency. So it’s like gold, it’s like shares. If people buy and sell shares, they generally know they’ve got a tax implication if they make a profit or a gain on those shares. Where the confusion with crypto comes from is that people think because it’s a currency, they think it’s like the money you’ve got in your bank in Aussie dollars.

So, they think that they can take money out, put money in, and potentially move it from one bank account to another, and none of those transactions are necessarily taxable, but that’s not actually the case. With crypto, there are some trigger points that will create a taxation implication, and that could be selling it, which is the easy one. It’s the same as selling shares. If you make a profit, you pay tax.

But where it gets a little bit more confusing is if you convert it. So if you take it from one coin to another – Bitcoin is a very well-known and common term when it comes to cryptocurrency, but there are a whole heap of other coins out there like ethereal and other bits and pieces – if you convert it from one type of coin to another, that in itself is a taxing point. People don’t realise that. Some people think they’re just moving it from one bank account to another.

So, transferring it, gifting it to someone – if you take money out of the bank to give it to your child, it’s not taxed, but if you gift crypto to someone, that can be a taxing point. There are a few other bits and pieces that would potentially trigger a tax implication when it comes to crypto that you wouldn’t expect.

Rob Cameron:     It sounds like an interesting situation for an accountant to be in, if you don’t know a lot about where it was generated from and who operates it. If a client comes in and says, “Right, I’ve got this $100,000 and I want to invest it into crypto”, I imagine the first thought would be, “Ooh, is that a good idea?”.

Kylie McEwan:     My first thought is you need to speak to a financial advisor because I’m not licensed to give you that guidance! So certainly, it would be making sure that they investigate their risks around investing in crypto and whether that’s the best option compared to something else. We’d direct them to speak to a financial advisor to understand what their best option is. There would be some financial advisors out there who would think crypto may work okay, putting that into a wallet and using it.

We generally get involved on the other side when they come to us and say they need to do their tax return and tell us that they’ve got some money in crypto. So, for us, it’s trying to work out, well, where is it? What exchange? Can we get tax reports to understand what’s happened during the year to see if they’ve got any tax issues?

Every day the ATO is getting better at data matching and talking to different exchanges. So, a lot of the time now, when a person comes in to do their tax, there’ll be a note on there called a pre-fill report where the tax office will say, “Here’s your bank interest, here’s your payment summary, and we’ve got a record that you’ve had some crypto transactions.” So that might generally be the starting point where we ask questions.

Rob Cameron: I know people make bold statements, but I can guarantee without any hesitation that I would never be involved in cryptocurrency. However, during the American election campaign, I was trembling with nervousness because it was talked about so openly and flippantly as an important part of ongoing American life.

We’re talking about two people who are regarded as billionaires who are going to play with crypto. That scares me because it gets people involved, and people think there’s an element of safety about it. But from where you sit, like share portfolios or gold, as opposed to the Australian dollar that we invest in and sit on, there is a risk involved. And when people with lots of money are promoting something, my senses go off that the risk is even higher.

Do you feel that you need to educate yourself more about crypto as an accountant? It may become a bigger part of society.

Kylie McEwan:     Potentially. I think going back to what you were saying about the risk side of things, it’s the risk versus reward, and you get that with everything. Yes, I think crypto is not necessarily as well known as the likes of shares, gold and those sorts of things, but there’s risk and votility in any investment. So, from our perspective, I try to make sure that I understand what the tax implications are around transactions.

If it becomes a more common part of society and a more common currency, then it’s really about understanding how that will be treated. We’re guided by the tax office and what the rules are, how they’re treating it. So it’s really just making sure that we stay ahead of that as much as possible.

Because generally, people are making decisions in investing. Transactional steps are happening before we really know what the rules are as things change, so it’s just about trying to keep across things as much as we can.

Rob Cameron:     Just on that too, with the tax implications, if someone wanted to invest in property or a share portfolio or even gold, does the tax office have a different regime around crypto as far as the rate of tax and where tax kicks in?

Kylie McEwan:     No, they don’t. The tax office treats crypto like property, like an asset, the same way from a tax perspective as they would a house or gold or shares. The way taxation works is that you make a gain or you make a loss and it’s treated on account of capital. So we work out if it’s a gain, and if so, what that capital gain is.

If you’ve held your crypto for more than 12 months, you get a general 50% discount, like you would if it was shares or a house. And then you pay tax at your marginal tax rate. So there’s no different rate of tax as such. It still comes into that one bucket of your tax return, and whatever your tax rate is based on your entire taxable income is what’s applied. I think one thing that trips people up sometimes is what happens if you make a crypto tax loss. A crypto tax loss is not able to be deducted against your other income, so your salary and wage and other normal income, unless you’re treated as a crypto investor.

Rob Cameron:     A registered trader or something, yeah.

Kylie McEwan:     You don’t necessarily need to be traded, but you do need to be trading properly. So that means that you’re pretty much running it like a business. And if you were to prepare a tax return and try and claim a whole heap of crypto losses, and we’ve had a number of people try to do that in the past when things have bottomed out and that they wanted to try and reduce their taxable income because they’d lost a whole heap of money in crypto, the tax office will look at that and say, “Well, what are you doing to demonstrate that you’re a trader over just an investor that’s put some money in and has changed it around a little bit, versus someone that’s in there every day moving transactional things all the time trying to make a profit.”

So there’s a whole heap of substance that you need to put behind that argument if you want to say you’re a trader so you can recoup your losses.

Rob Cameron:     I suppose the story about a bookmaker or a punter saying, “Well, I lost $100,000 on the Spring Carnival, I want that as a tax deduction…” Well, that’s not really how it works unless, of course, you are a registered punter or professional punter.

Kylie McEwan:     Ultimately, yes, exactly.

And I think the other thing that trips people up sometimes is the concept of the personal use exemption. So there’s a general approach that says if it’s under $10,000, then it’s personal, and it’s for personal use you don’t need to worry about any taxation implications on your crypto wallet, but that’s not necessarily the case. It’s applied in very limited circumstances, with examples that you can see on the ATO website.

I’d suggest for anyone who is interested in understanding a little bit more that the tax office has a number of different crypto fact sheets around how they believe crypto is treated and what you should do. And we’re always just a phone call away as well.

But some of the examples around the personal use exemption are like when you need to buy something but you can only do it via crypto. So you open a wallet, you put the money in, you make your purchase, then you close the wallet. That’s an example of personal use. Whereas putting $5,000 into a wallet and letting it sit there for a year and go up in value, the ATO wouldn’t necessarily say that’s a personal use exemption.

Rob Cameron:     Now the other thing is the use of crypto. You’re already suggesting that some businesses are trading in it almost exclusively if you want to buy this you have to buy with crypto.

Kylie McEwan:     Online businesses. Yeah.

Rob Cameron:     Is there more of a safety concern with them dealing in crypto, rather than using the Australian dollar? If they’re buying from an American company, you’d have to buy and have that exchange rate trade. Is crypto used to make that transaction easier?

Kylie McEwan:     Not really, because they have their same value, different values and exchange rates and things, so I think it’s just people making the choice to use different platforms. There are potentially some benefits there in it being decentralised, not necessarily governed as much, but I think around the world, different countries are trying to work out how are they’re capturing it and trying to control what’s happening in their space.

Rob Cameron:     Have you been in the business long enough to have gut feels, and do you have a gut feel about crypto’s future?

Kylie McEwan:     Oh, I think it’ll be there. I don’t know what it will look like in the future, but it hasn’t gone anywhere. I think it’s here to stay. It’s just a matter of seeing how much it does, whether it becomes more common, I suppose.

Rob Cameron:     I suppose it’s the element of, and people are always prepared to take financial risks with all sorts of different investments. We see people getting tripped up daily with scams, it’s gone past the scam point I would imagine. So does it have a built-in sort of safety net where people can be relatively safe in the knowledge that the only effect will be the market going up and down as opposed to it being a more scammable type of product?

Kylie McEwan:     Probably. I think a few years ago, when it wasn’t necessarily as common, and Bitcoin became this thing that everyone talked about. And I think there’s a lot of people that still think that it’s not necessarily a scam, but there’s so much unknown that they’re not comfortable about it. It’s certainly past that point. I think people now know it’s a part of everyday investing and spending for a lot of people. So that side of it’s there to stay.

From a scam perspective, it’s like everything; you could be scammed trying to buy BHP shares or something. Even with gold, it just depends on who you’re dealing with, and you’ve just got to be careful in everything you do.

Rob Cameron:     Do you see that more often in your general day-to-day business, that the level of skill of the scammers just continues to get better and better?

Kylie McEwan:     Definitely and obviously, with us dealing with the tax office and our clients dealing with the tax office, that’s the biggest area that we have to be mindful of, and we get a lot of calls from clients just checking to see if correspondence they’re receiving is legitimate, if it’s direct from the tax office, even sometimes if it’s from us. We always say that if there’s anything that you’re not sure about, please call up and check. But yeah, there’s always people trying to scam, whether it’s scaring people into thinking they’ve got a tax debt that they need to pay immediately, otherwise they’ll be carted off to jail.

And even trying to get you to change your bank account details and things for refunds to go to. So yeah, that’s the space that we’re in and keeping hold of confidential private information as well. So tax file numbers for instance, you know, that’s your private security number, you don’t want that getting out and people using that. So yeah, just making sure that all of that’s kept safe.

Rob Cameron:     I think that’s definitely one of the real advantages of having a close connection with an accountant. If you’ve got a reasonable sized business or just a reasonable property portfolio, whatever the case may be, I think for all those reasons it’s important to be very close to you regarding tax implications, but also this ability to be prepared for some of this stuff that comes around daily, trying to attack the little nest egg that’s tucked away there.

Cost of living, there’s a lot of pressure on that around Geelong. Is it something that your clients are feeling, or is it the case that the people suffering the most from it probably don’t have an accountant or a relationship with an accountant, so you may not see it in your business?

Kylie McEwan:     No, we certainly do see it. We see it a lot from the business side of view. We have a number of business clients, particularly in the role that I have. And yeah, it’s tough. It’s tough around Geelong. It’s tough in general, I think, out there. So it’s just about people making sure that they’re keeping an eye on their spending.

They’re trying to encourage customers to come in and to buy and spend. It’s just that fine balance. I think that those businesses that have a level of diligence and are keeping an eye on how they’re tracking and their budgets and their forecasts – I know things are going to start sounding really boring if I keep going – but the people that are really disciplined around their financial acumen, they’re the businesses that will get through these tougher times and be able to control where they’re going.

Rob Cameron:     And I think it’s a very good point you make there because sometimes, when targets aren’t met, that’s where you may be likely to make a bad decision out of a little bit of desperation and the important need to sit down with people of your ilk and have those conversations about well what do we do based on this? Are we prepared to take that risk? And maybe that risk is all go and play with cryptocurrency.

Kylie McEwan:     Yeah, and it may even be that they’re just not able to pivot and change the direction of where they’re going quick enough. A lot of the time, by the time you realise you’re in trouble, it’s too late, and it’s really hard to turn things around. So having an idea early on that, hey, we’re not hitting those targets, and we need to tighten up, it’s important to look at that earlier. From our perspective with clients, we’re seeing a lot of pressure. We talk about the cost of living, definitely at the individual level.

And as I said, businesses are feeling it, too, because people aren’t spending. And for some reason, now is when the tax office has become really aggressive in following up on outstanding payments. So I was at a tax conference a few months ago, and the new Commissioner of the Tax Office was presenting, and he was talking about the fact that they’re going to really start focusing on debt collection. The tax office is the fifth largest bank in the country. People generally, if they start to get into a bit of strife, it’s the GST and taxes that don’t get paid.

But it means that any sort of empathy that’s been coming from the tax office in outstanding debts, it’s just out the window. We’re getting recovery debt notices from debt collectors for debts that are less than 3 months old, which we haven’t seen before. So, one example I have is that someone didn’t realise they’d missed a $1000 payment on their BAS. It was just a balance that had to be paid and all of a sudden they’re getting a debt recovery notice from a debt collector. So we’ve got individuals and businesses feeling the heat, and then we’ve got the tax office coming in with that sort of attitude which is really disappointing, and also not remitting late lodgment penalties and general interest charges and things which they have done in the past when there’s been a reason why there was a late payment or lodgment, but it seems to be a very hard ‘No, pay us now, we won’t talk to you’, which is concerning.

Rob Cameron:     Yeah it is. The other issue we talked about was being an employer and the responsibilities of employers, and taxes are certainly one of them. The other one is superannuation. Are they linked now to the point where it’s almost impossible to avoid your superannuation contributions on behalf of your employees?

Kylie McEwan:     To a point, yes. So there’s still no situation that forces the employer to physically pay it. But you’re an employer you’re now obligated to be registered and lodging single touch payroll with the tax office. So that means lodging your pay details with the tax office every pay period, including how much should be going into superannuation. This means the tax office has that data and can data match to the super funds on a regular basis, whether that’s monthly or quarterly, depending on how often the employer is obligated to pay, to make sure that those monies are hitting the super funds. We are seeing that when that doesn’t happen, and the tax office sees that it hasn’t been paid or it was paid late, they will send out correspondence, and we will receive it if we’re the tax agent to say that, hey, this was paid late, or you haven’t paid.

So there’s a lot more transparency in the arrangement now, but we’re not at the point yet where there’s an actual forced payment.

Rob Cameron:     It made me think that when you were saying that the taxation department is getting a lot stronger in enforcing the tax payments, that they can only still give guidance on superannuation, not actually penalties and heavy sticks?

Kylie McEwan:     They can give penalties. So if someone doesn’t pay their superannuation on time, there is a process that needs to be followed – the employer needs to actually declare to the tax office that it was paid late, and they have to pay some penalties, which includes a set interest rate that is supposed to replace the lost earnings that the employee would have received if it had been paid on time. Those mechanisms are there and have been there for a long time.

The single-touch payroll and record reporting side of things have now made it more transparent so the tax office can track that a lot easier. It used to be that they’d send a letter to see if they could find out what had happened when you hadn’t paid. So the mechanisms are there, but it still comes down to someone having the money in the bank and paying it.

Rob Cameron:     Well, that is very good news because I’ve heard some horror stories of businesses going under, and the first ones that suffer are the employees when super and tax and things aren’t paid, so it’s good that the guidelines are there and stronger and being enforced because I think it’s an important part.

Kylie, thank you so much for coming in. That was a lot of fun, and I feel a little more understanding of crypto without knowing exactly. I think the most important thing, I still don’t know exactly why anyone would want to do it, but it’s it’s their decision, but it seems to me your organisation has the capacity to be a guide rather than an advisor in this space.

Kylie McEwan:     Correct.

Rob Cameron:     Please do your own research! But find yourself an accountant, and station sponsor Davidsons is certainly one of the better, well-known and respected ones in Geelong. And if the employees present as well as Kylie McEwan has done, you’re in safe hands, I reckon.

Thank you so much for your time this morning I hope you’ve enjoyed it as much as I have and we may get you back in the new year to talk more.

Kylie McEwan:     Certainly, thanks for having me.

Rob Cameron: I really appreciate it. Kylie McEwan is with Davidsons Accounting, and if you didn’t know much about crypto, you might not know much more after that conversation. But look, I have a feeling that we are a little bit smarter for it. But just whatever you do, make sure you’re very, very careful around crypto and associated behaviours and investments.

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Disclaimer: The information provided in this article is factual in nature and objectively ascertainable and, therefore, does not constitute financial product advice. Importantly, the factual information that has been supplied does not take into account your personal circumstances, objectives or goals.