Wash sales: The ATO is cleaning up dirty laundry

The Australian Taxation Office (ATO) said 'asset 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. Such a practice 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 ATO said.

"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 has access to data from share registries and crypto asset exchanges and picks up such sales through its own analytics. 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," he said.

People caught engaging in wash sales may face swift compliance action and additional tax, interest and penalties.

The ATO is urging taxpayers to ignore any advice encouraging a wash sale of any asset.

It's also sending a message to 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: