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 focused 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.
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.