The Australian Taxation Office (ATO) has recently released extensive non-binding web guidance on taxing crypto assets for individuals engaging in crypto activities. The guidance spans three crucial subsections, aiming to shed light on the taxation nuances surrounding crypto asset transactions involving gift cards or debit cards, crypto asset prizes and gambling winnings, and the complexities of decentralised finance (DeFi) and wrapping crypto.
Despite the absence of a formal definition in Australian tax legislation, the ATO clarifies that crypto assets, a subset of digital assets, employ cryptography and distributed ledger technology. The ATO emphasises that crypto assets are not considered a form of money for tax purposes, and the tax treatment depends on how individuals acquire, hold, and dispose of these assets.
Crypto Asset Transactions with Gift Cards or Debit Cards
The ATO provides specific scenarios for taxing crypto asset transactions involving gift cards or debit cards. Capital gains tax (CGT) events occur when individuals use crypto assets to acquire gift cards or load debit cards. The guidance illustrates these situations with examples, highlighting the importance of understanding the tax implications for users of “crypto debit cards” as the market offers an increasing array of such products.
Crypto Asset Prizes and Gambling Winnings
The ATO clarifies that, in most cases, prizes won in lotteries and game shows are not considered ordinary income. However, if an individual wins a crypto asset, it may be held as an investment, and eventual disposal could be subject to CGT. The guidance provides examples of such situations and emphasises the tax treatment of gains on crypto asset winnings when sold later.
Decentralised Finance and Wrapping Crypto
The ATO defines DeFi as blockchain-based finance conducted without relying on financial intermediaries. The guidance warns that CGT events can arise in DeFi scenarios, particularly when transferring fungible crypto assets or depositing assets into liquidity pools. Notably, the ATO’s stance on wrapping events as creating CGT events introduces complexities, such as when unwrapping a token.
In the absence of legislative clarity, the ATO’s guidance offers a comprehensive but intricate roadmap for individuals engaging in crypto asset activities. With the Board of Taxation review expected in February 2024, the crypto community awaits potential legislative changes that could provide much-needed clarity in the taxation of crypto assets. Until then, taxpayers must approach crypto activities with caution, bearing the significant tax compliance burdens signalled by the ATO.
For a full reading of the guidance, see here.
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