Crypto Losses: Making The Best of a Bad Situation

Thanks for doing this mate. Look, we've got obviously with it being Friday afternoon and silly season. We are recording this so that people can view this after the event as well. I will give you a recording of this as well. So ladies and gentlemen, I've got the pleasure of having Danny here who's the head of tax Australia for Coinley. Of course, we've done a lot with

Coinley in the past. And it is the platform that I use to essentially bring everything together so that we can actually get our records and make it work. And what we want to be doing today is just discussing a few of the tax environments here in Australia. Of course, for different jurisdictions, there will be different laws and whatnot. But thanks so much, Danny, for taking some

time out of your busy day to have a chat with us, mate. Yeah, thanks, Greg. And it's great to chat. Yeah, look, if anyone's got any questions throughout this as well, we're going to be going for about 20 minutes half an hour. We'll keep it short to sink to the point because I believe you're flying to London after this, aren't you? I will be next week.

Right? Yeah, no worries. So look, just to kick things off, I think one of the important things that people have been asking me, of course, this year we have seen Celsius go. Yeah, file for chapter 11. We've seen as FTX Australia file as well, but something similar and in different jurisdictions block fire. We've seen the losses of Luna. There's been an awful lot of events that

have had people make some fairly sizable losses. So I think maybe to kick this off, it's to maybe differentiate administrative and loss and how we can work that in to tax filing's age year. Yeah, definitely. I think it's a really important time to be discussing this as well, because it's only really after the fact that a lot of people realize, well, is there any how could

have done that could have helped me in this situation for tax purposes? And, you know, often, often there are steps you can take along the way to make sure you keep good records and so on. So yeah, definitely a good time to talk about it. So what is the difference? So let's say for a lot of people in this community currently, what we've got is we've

got people that have taken a lot of loss in the FTX saga. And I'm sorry, just fixing that up. A lot of a lot of money is tied up in this FTX saga. And of course, it's very similar to Celsius and what not there as well. So what is it? What's the difference between someone that's going into administration? Because we can't necessarily class that as a

loss until it has been realized. Is that correct? Yeah, that's right. And I guess taking, you know, one step back from that is you don't firstly work out whether you're actually eligible to be under the CGT regime in the first place. So if you're running your business, different rules are going to apply. But let's say, you know, let's focus that mostly, but I think that's the

thing that people are going to be investing as individuals, they might have crypto investments as a side hobby or, you know, have full time job that they do, which is outside of crypto. So let's, let's assume that most people are subject to CGT. The consideration then comes will, can you actually claim your loss? Right. And the way, the way we are currently for the FTX saga

is you go through the chapter 11 proceedings. You may or may not get some of your funds back. And we've seen this with a mouthgocks, you know, took years to go through this process. And so, you know, in order to actually claim a capital loss and just again, just for context around that, the idea being that your losses can then offset any future gains that you

have. Right. So if you make a capital loss and then you make a capital gain in the next year, then, you know, if you're under CGT, you potentially offset your loss with that game. And you can carry that forward in the future. So it really is a good silver line. If you have incurred losses. Now, typically, that's when you actually disposed of your asset. So, you

know, if you've sold it changed from BTC to E for transferred, you might have gifted it to someone and so on. But in this, in this sense, whether you've actually kind of disposed of your asset with the ATX, Saga or in liquidation terms is is actually a murky area. So, you know, first and foremost, the asset, you know, is the asset. So, there's actually implications of

this are really great. So there's no, you know, you're not going to get clear arts and now from anyone around whether you can actually, you know, claim your loss out of today and most likely you can't. And so where we're at is we go through a chapter of our proceedings. You, you know, down the line when it's discovered that there's, you know, X amount of funds

left on the platform and all the creditors have been paid out. And loans have been paid back. And then users might start to receive funds. And at that point, there's a question as to whether you can claim a loss not. And that's actually still very unclear. So, you know, I'm definitely seeing some conflicting reports out there around, you know, whether losses can be claimed or not.

And, you know, really, it's just being careful at the moment, because in most cases, you, you know, your funds are just still stuck in the code. You're kind of in this limbo period, which is really frustrating for FTX users. But does that also mean that any, you know, that we would have there as well are not to be considered gains because we can't really access. And

for another thing to consider is because we can't log in, I'm not sure if you can log in anymore, but that was a period where you couldn't log in to get your records and transactions at all. So for a lot of people that didn't already have their transactions, my mind would all there on coily start off with because I've been going through that process. So I've

got them. But for people that haven't got them, how did they navigate because they can't show anything to the ATO and say, here's my profits and here's now locked up. It's just out there in the ATO. Yeah, it's a great point. And, you know, if you are going to claim anything on your tax return, you actually have to have the evidence to support it. That's arguably

more important than just putting the number in. And so, you know, how do you, can you actually evidence that in your current state? Now, if you, if you took screenshots of your balances, when FTX, you, when you're still able to log in, whether you kind of use software and plugged in that way and have a little, have been able to retain some records, you know, if,

if you're in the unlucky position where you actually have nothing to prove, then, you know, it's actually because it becomes a bit of a black box at the moment, it's actually really hard to be able to substantiate anything, whether it's a game, whether it's a loss, whether you've traded in that period when FTX halted with draws, but kept their platform open for trading. And so, you

know, there, there might be trades that people have made that kind of notional or theory. It's very radical because they happen on the platform, but you can withdraw anything at the time and you don't have anything to prove for it. So, so that's going to be the real challenge because tax authorities aren't going to accept your word when it comes to these things. They're going to

want to see evidence and proper evidence that too. And there was a quite prescriptive over, you know, what good evidence looks like. So, you know, that's going to be the real challenges. How do you actually show you, you, you've held balances in FTX and what you might have done between the point at which you couldn't withdraw and they actually shut down the whole platform? And okay,

so that's so essentially to box the whole sort of sales is FTX block fire. All these other companies that are in a very similar position to box that at the moment. It sounds as though from your standpoint, the information to us is we don't really know right now because it is in the in the administrators hands. When it comes around to doing our taxes, we, which

will be the next this this current financial year that we're in. We'll have to wait and see how far along proceedings have become. We'll play it out to see what information we can actually lodge you. Is that sort of the standpoint there? Yeah. And, you know, I've actually seen that the A2 have actually responded in their community forums. So they actually have. A way that you

can ask them questions on an informal basis and they give you an interpretation of off their view. But it's not really binding. You can't, you can't use that as kind of evidence. Right. But they're kind of saying you're in its current state. With the withdrawal just being paused, you know, it's not enough to claim a loss. And based on that guidance on what you need to

claim a loss that that probably is the case. Right. You need to be able to show that you don't have beneficial ownership that you know there's been a CGT event. And these are, you know, again, prescriptive in the law. So yeah, I think I think at the moment is kind of wait and see. A, there might be further guidance on this. Right. Because this is something

that's been affected by on a really widespread or industry-wide basis. And perhaps it is more significant than some of the collapses that we've seen in the past. And, you know, I think even the. The firm that are looking at FTX at the moment that have taken over the affairs and the operations have said this is fraud like we've never seen before and they were they were

dealing with them. So yeah, I think this is a. A really widespread scenario here. Loss of implication. So wait and see on this for the time being. So ladies and gentlemen, there's the first thing. Relax. There's nothing you can do right now. Take that out of your head and forget about it. Because it is what it is. And it will be what it will be. And

we can't do anything about it. What we can do about that. Let's let's let's talk about something like the lunar collapse because a lot of people obviously with that being a top 10 token. A lot of people held lunar in their portfolios. Now, depending on where they board, it will depend on the loss and to exercise that loss that can be used in your filing to

the ATO, we would need to print that trade as a loss. Right. So let's say I converted one Bitcoin into lunar at the time. Now it's worth none Bitcoin. I crystallized that loss by converting it back to Bitcoin. Show that as a loss based on a dollar value of purchase price, which your account should be able to do. You've got to work with an account. And

obviously with this sort of stuff, it's always good to have a good account. Because you pay them, they save you more times and not and they make your life easier. So we have to we have to crystallize that loss and then submit that. Now if we do that, what can that loss then come against? And in what years? Because obviously it's only happened this financial year.

Yeah, that's a good question. So yeah, if you can, if you can prove that transaction history that the wallets belong to you or the addresses and exchanges, so on. Then you go and claim that loss and carry it forward until you make capital gain basically. And so we're a net capital gain. So let's say all you do is all you've traded is lunar at the crash.

And then in the next financial year that you've made a game on Bitcoin, for example, in that scenario, you'd be able to offset the loss against any game that you've made. And it's ring fence just against your CGT assets. So you can't go and say, well, you know, I've got a lot on lunar. I'm just going to reduce my tax. It doesn't work. You've got to

see it as being ring fence in this CGT regime. But again, you know, can you prove it? Have you got the records and so on? And that's, you know, the ATO will come and ask you to substantiate your claims. If you do make claims. So yeah, it's just worth noting that good evidence really helps. And there's, you know, the ATO clear on what that evidence looks

like. It's also, you know, we mentioned there's not much we can do in this position, you know, with these types of events. But I suppose one thing. We can do is just work out what records we have and collate that. So, you know, whether that is screen shots from when you've used the platform, just before it crashed, whether that's, you know, you've used software like coinly

and you haven't yet refreshed your API because the API I know, no, works, by the way, for FTX. So if you've had your balances and there, you know, that can be used. The ATO do actually say software, tax, crypto tax software is record keeping. A part of record keeping. So, you know, that would also help. But just have a think of what you actually have on

file to show you've had the funds. Because then down the line when the scenario is a bit more clear on whether you can claim a loss. You know, after all the credit system has been been paid after all the debts have been repaid or FTX. Then that's when you can work out. Well, okay, well, I may have something here, but how do I show that actually?

So I'd say that's probably important to just just think about for now. And so for those that have, you know, we use Lunar as an example because that is a, it's a crypto that's crashed and you can substantiate that by showing the trade record, which we should be keeping our trade records anyway, for tax. That will be essentially a pay it forward and IOU on future

profits. So let's say, let's say I lost $50,000 with that Lunar collapse. I put one Bitcoin in at the time, Bitcoin being 50,000. So that's the trend. That's $50,000 boom, boom. Now it's worth no dollars. I show you that position. Now I've essentially, if I make $100,000 next year, I can use that, that's IOU from the market to say, well, I lost 50 grand last year.

I'm going to put that with my 100 grand. Now we're talking about a CGT event of 50,000 as opposed to 100,000. Is that more or less right? Yeah, that's right. And, you know, it's important to remember as well. In order to make sure you can claim a loss. You actually have to declare it on your tax return. So you can't just have it in your mind,

you know, I've lost this much in previous years, because they do carry forward. But you actually have to say in your tax return, and there's a schedule for this, that you can, that your accountant will be well aware of to say, hey, you know, I've got, I've got this amount of loss in the year and they'll carry it forward each year. So that it will actually

pre-populate when you, when you do go and do next year's return. And you'll be able to say, here are my carry forward losses. It shouldn't match with what was in your previous return. So you've got to lodge that each year. You can't then go back and say, oh, look, back in 2020, I made a loss of $60,000. I know I didn't declare it, but it is

there. We have to do it. It's, I guess it's two high street, right? Because it's the same with games and losses. It falls under the same regime. So, you know, the difference there is, it's probably hard. Not on your door and say, hey, you had some losses, but they will if you had some gains. So, yeah, it's up actually funny that, but it's up to you

to actually disclose them and put them in your, in your return. So that's what a lot of people are using coin in four this year. Obviously, people are generally hurting with their investments in crypto. So, yeah, I mean, people are using using the software to actually say, well, I've made this, this amount of loss. From my transaction is during the year. And, and you know, what

do I need to substantiate? What do I need to have to substantiate that and put that in my return? So, yeah, very important. And guys, if anyone's got any questions, please do let us know. We've got a limited amount of time that we can speak with Danny here. Um, so Danny, with question for coin leave, what happens if I miss the tax deadline at the end

of October? Yeah. So, it's an interesting one. So end of October, I think. October is the deadline for individuals. If you've got an accountant and you've had registered with an accountant before October, you probably have an extension until next year. But that's worth checking. If you had an accountant, if you don't, I would say go and get one because they will be able to help you

manage that process. And you know, it's, it's always worth being upfront and forthcoming with the 80 because it's not about just declaring your numbers and if there's a fine paying the five. It's also to take the time and straight that you've got a good compliance record because that does have weight when it comes to, you know, future things that might impact penalties or interest and so

on. So, you know, if it's a first late log, you may be able to just very, very quickly get your return and speak to an accountant. How can you mitigate any future risk on your reputation as a taxpayer and so on. But, you know, never, never just sell. If you have missed the deadline, say it always just go and try and get that in as soon

as possible. And what is it like when we do our corny reports, obviously, we plug in our APIs and do all that sort of stuff. We then go and go, you know, get the records. How much work does it take to make that all balance because that's a question I've had in the past is that you might put it all in a might miss something or

it doesn't balance completely. How do our accountants then go? Well, it doesn't balance. What what do we then do? What's the deal at that point is, is it a declaration that we've done our best? Like, how do we make that process of, okay, it doesn't fully balance, but we don't know why and we're not tech wizards. So what do we do? Yeah. So I guess, well,

firstly, generally, corny will highlight where it doesn't balance. So, you know, if there's any areas, it was just say, hey, you know, there's missing purchase history. Because yes, connect everything, essentially from the beginning of time for it to accurately calculate games. You can't just upload what you've transacted with in the taxi, right? It doesn't know when your original purchase might have been to then calculate again,

all of us. So, yeah, I think that's the first thing. Check those areas that come up. If there are kind of balances that seem off with what is on the exchange, again, if it is, if it is flagged on, coinly, like address that through there. But, you know, when it comes to crypto, people are transacting in very complex ways, right? So people might be really involved

in D5, people might be using protocols. That are just, you know, or blockchains that are just very, very niche or a nuance that not many people have heard of. If that's the case, then yeah, your best efforts are going to be important. But again, like having documentation or some kind of record to substantiate whatever you're doing. So even if that's taking a position, that software doesn't

necessarily take. Or if you have, if you have some balances that you can't go through software and that you have to manually find, but then show why you're manually adding things. And, you know, have that generally from first principles. So don't just have a random spreadsheet with numbers in, try and show that it's your account belongs to you, you own it. These are the balances in

that account. So, I'll. Because a lot of people right now, I mean, we've crypto a lot of people do see it as a utopian environment where we don't need to pay tax. But. Actually, that's so it's probably worth touching on that because it's interesting this year when I, when I do, my tax, I actually got a note from the 80 say you've held crypto. And so

the facts are that the 80 are actually collecting information from banks and from Australian exchanges. Yep. Australian exchanges essentially are obligated to provide transactional information to the 80. And the way they actually use it's quite interesting because they take that information almost as a bulk kind of data feed. And they will then retain that and compare with what you discuss. So, it's a very often, so

firstly they'll notify you've got crypto, don't forget to declare it. But then, you know, when you do come to logic return. If say there checks on what you may have transacted with or what you gain should be. Is off with what you've disclosed that's when they can pull you up. So they do have the data right now. And that's why I say always best to just

be forthcoming. If you know you miss the deadline. Do do the best you can to get that return in as soon as possible. And again, you know, use proper accounts that can navigate this for you. I had the exact same thing with Maya. Can it was it just shows you that, you know, there is no escape. Not that I don't think, you know, escaping things. That's

basically tax evasion, which we don't want to be doing that. It's a, you know, there are very sensible ways that we can minimize our tax in a legal sense, depending on the structure of the company or the structure of how you set things up. And that's why it's so crucially important to have a good account. Now, Dan's asked a question. On the off chance we do

get some of our funds coins back from FTX. Will we get them a current market value potentially years later or back data to the prices when the crash occurred. What has happened in similar situations the past? Good question. Yeah, I think with mouth got to is actually based on current market value. So, you know, it's it is a it might be a unique situation with FTX

or if that actually happens, like there's definitely no prescription. The alternative kind of way in which this should be done. So, I think it's basically the best that easy exchanges can do with the balances they have. So, yeah, I mean, even, even so, whatever comes out of the exchange might, it is important to remember that that might not be the same for tax purposes. Right. So,

even if you did receive a certain amount from the exchange and you lost, you know, say I think in the mouth, gox example, they're saying around 20% off your fund. Maybe recover. Right. So, let's say you've lost the 80% where do you actually take the numbers to be of the loss? Right. Is it when you actually had your withdrawals, port is it market value when they've

gone through the chapter 11 process a number of years later? And that's that's actually the real kind of technical issue. And it's really complex, right? It's really hard because in tax law, you've got to go to, well, when do you actually lost beneficial ownership? And when when has the CGT actually event actually occurred? So, these are the real kind of complex questions, which is why we

can't give these, you know, straightforward easy answers. It's all answered. Yeah. Exactly. Okay. Thanks for the question, Dan Reese. How does the ATO viewer scenario like this? A trader is in many cities. So, I think these wing trades that are in the red right up to June 30, sell them all to realize a loss for that financial year and then reenters the trades. Yeah. So that's

going to be a wash sale. And likely you can't then use that loss. Right. So, we haven't mentioned wash sales, but we have talks about losses. So it's probably important to talk a little bit about wash sales and wash trading. So, yeah, effectively, if you've made a sale or you've disposed of your assets to purely real. So, you realize the loss, right? So you actually have

no intention of, oh, you actually don't want to sell the asset, but you want to claim the loss. That's called wash sale. So then you go and rebuy that very, very quickly after 30 of June. So you might sell on like 27th of June, reacquire, you know, third of July or something. So you won't actually be able to claim that loss. And if you do, and

you get ordered to the ATO will probably overturn that and say that's a wash sale. So, yeah. That's also hot on the ATO's agenda. So they have come out this year a number of times saying don't engage in wash, wash sale strategies. They don't work. And also it's the same for a lot of other markets as well, you know, US, UK, etc. But you're going to

be, I mean, the concept of that I get the concept for the immediate tax benefit, potentially if it's a loss, running it a loss. But then let's say you're buying it back, as you say on, you know, you sell at the 20th of June, 27th to crystallize a loss, you use that in your financial year tax records to, you know, avoid some panks, you know, as

part of your strategy to pay less tax, we'll use those words. And then you buy it back on the 3rd of July, then it goes up. So you're, I'm just trying to work out why you would do that because effectively, if you bought it lower again, you get the loss this year. But now you've got a bigger profit the following year. So you still find yourself

in a similar position, because you're going to be able to get the loss. You've got to pay the capital gains tax on that move of that year, right? Because it's going to be within 12 months. If you buy it, if you buy it back on July, 3, and then you sell it June, 27 and try and do something in that realm, then you're inside a 12

months, so your CGT events going to be taxed at a much higher rate, right? Yeah. And it's, it's just not commercial, right? So the reason you made that trade has nothing to do with your strategy to in the market. It's just a purely realizing that the tax loss. And so that's when the 80 ago, well, you know, no, this doesn't work. And generally in these kind

of scenarios, we see that playing out in tax or, you know, not just for individuals, but for businesses as well, like wherever you're making a transaction purely from a tax perspective, that generally seems too good to be true. Then, yeah, it is probably is. So yeah, that's, that's just a general rule of thumb that I use because, you know, is, and that one's a basic one,

right? So the Azure well aware of those was trading strategies, they will, you know, apply compliance resources to them if they think you have done a wash sale. What they don't do in Australia, which they do in other in some other countries is apply like a day limit to it. So, for example, you know, in in Canada, they apply like 30 days or 31 days before

the transaction and the same after. And then, you know, I mean, I think that's the only way I can do it is to make sure that I can make sure that I can do it. And so if you trade in the same asset, it's a blanket wash sale. If you sell and re-applier the same asset, that's it. And in Australia, you don't have that day period,

but, you know, you have to use judgment there as to whether you are selling just to get the loss. And, you know, again, it's something that is your concern. Yeah. And look, we'll, we'll wrap with one final question here from Jeff. It's a pretty broad one, but I'll, you know, I'll put it to you as well. Do you think the government should put in place greater

regulation to protect future FCH install events happening or as FTX and unique situation? I'll start with that because FTX A being a fantastic platform for traders, good liquidity. They went ahead and got an AFF cell, which for a lot of clients, men, it was a pain because they now went down to two, two times margin as opposed to up to 20, which is what it was.

That's a regulatory thing that needed to happen. Regulation, which they had, they were under an AFF cell, they were governed by assets. But, you know, this is still happened. What we're sitting back now hoping is that the asset regulated environment, the audits needed to be conducted to remain, you know, within that environment and be essentially following the laws, the perhaps that will save us. Do we

need more regulation? Is there anything wrong with current regulation? Or is this FTX or deal? Of course, it hasn't unwind just yet. Is this something that's just a, you know, it wouldn't have mattered anyway. Yeah, I mean, it's an interesting one. I do, I do think this FTX fall out is obviously going to call for more regulation, right? And I think where we probably do need

it most is around consumer protection. And so, you know, some exchanges have had a FCH cell, obviously FTX did. I think there's, you know, it's tempting for many to just go and put FTX in the crypto bucket and extrapolate that throughout the industry. And it's not. Because what happened with FTX is very unique to, you know, the circumstance and plainly, it appeared to be really, really

bad fraud. And it's not yet. So again, you know, I think we are going to see more regulation on the consumer protection site. And, you know, we've already seen calls for that treasure. Remember mentioned has actually come out and highlighted that we know treasury are doing token mapping exercise. They're trying to work out, you know, what different buckets of credit and you to actually be regulated.

So I suspect there'll be some, you know, increased focus on that when it does get released. Yeah. Okay. Well, look, we're on our half an hour slot that we've got here, Dalyo. Appreciate your time massively. Don't forget, ladies and gentlemen, that this is Coenley.com. There you go. There's the guide there that they've just posted up there in the chat for you guys to go and have

a look through it varying various different topics that we've just discussed. Go and have a look at a bit more detail. If you do decide to work with Coenley as a resource use TC 30, that's a little code there for you to get a discount there as well. And I can tell you as a user myself, it has made the process because it's daunting. You know,

when you've got 10 different accounts that you work with, it's, it's hard to get often the what you're after plugging through the API has been a big, big help. And of course, you know, anything that helps us as traders and part of the journey of being a trader is not just keeping records of your actual trade. So you can learn from them by looking at the

actual physical, you know, the actual visual chart and seeing what you can improve on next time. It's also keeping records of your trades and running this like a trading business. And part of business is paying tax. And you want to be paying tax because paying tax means you're making money. So I would highly recommend you guys and girls out there. I go and check out the

Coenley information TC 30s the code. And again, Dalyo, thank you so much for giving us this time and helping to de-missify a number of questions that have been coming through. And if there's any other questions that people have please let us know and getting contact with Coenley. Thank you very much for your time today, Dalyo. Thanks, Greg. Appreciate it. All right, ladies and gentlemen, well done.

Have a great day. And I'll speak to you later on. Bye for now. Cheers.