The Australian Taxation Office (ATO) is warning taxpayers to not engage in ‘asset wash sales’ to artificially increase their losses and reduce gains or expected gains. Wash sales are a form of tax avoidance that the ATO is focussed on this tax time.
Wash sales typically involve the disposal of assets such as crypto and shares just before the end of the financial year, where after a short period of time, the taxpayer reacquires the same or substantially similar assets. This is a wash sale and is done to create a loss to offset against a gain already derived, or expected to be derived, in certain circumstances, in a tax return.
A wash sale is different from normal buying and selling of assets because it is undertaken for the artificial purpose of generating a tax benefit for the current financial year. The taxpayer disposes of and reacquires the asset for the deliberate purpose of realising a capital gains loss and obtaining an unfair tax benefit.
The ATO’s sophisticated data analytics can identify wash sales through access to data from share registries and crypto asset exchanges. When the ATO identifies this behaviour, the capital loss is rejected, resulting in an even bigger loss to the taxpayer.
Assistant Commissioner Tim Loh urges taxpayers not to engage in this behaviour.
“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.”
The ATO is warning taxpayers who may be engaging in wash sales are at risk of facing swift compliance action and additional tax, interest and penalties may apply. Taxpayers are urged to ignore any advice encouraging a wash sale of any asset. The clear advice from the ATO is to check the ATO website or check with an independent registered tax professional and not to rely on advice you may receive through media, social media, or advertisements. If something seems too good to be true, it probably is.
The ATO is also reminding tax advisors who may be promoting wash sales or other tax avoidance activities that they may face action from the Tax Practitioners Board.
“Most tax advisors do the right thing, but a small number encourage this behaviour. Promoting a tax avoidance scheme will have serious consequences for the tax advisor and could leave their client with a large tax bill,” Mr Loh said.
If you know or suspect a person, business or tax advisor is not playing fair by participating in tax avoidance activities, including asset wash sales, you can report them by:
- completing the ATO Tip-Off Form. The form is also available in the Contact us section of the ATO app
- phoning the ATO on 1800 060 062
- reporting tax advisors to the Tax Practitioners BoardExternal Link.
For more information, see Taxation Ruling TR 2008/1 Income tax: application of Part IVA of the Income Tax Assessment Act 1936 to 'wash sale' arrangements.The Australian Taxation Office (ATO) is warning taxpayers to not engage in ‘asset wash sales’ this tax time.