Australia’s Tax Agency Unveils ‘Aggressive’ Crypto Rules, Leaves Clarity Unknown


The Australian Taxation Office (ATO) has issued guidance suggesting that Capital Gains Tax (CGT) is payable on certain DeFi transactions, yet they have been unable to clarify several confusing aspects of their statement. Many DeFi users remain in the dark as to how they should comply with these rules.

The ATO’s guidance of November 9th mentions that a CGT event occurs when transferring tokens to another address or smart contract that a person does not have “beneficial ownership” over, or if the address has a non-zero balance of tokens. According to the ATO, CGT is also applicable when exchanging one crypto asset for a right to receive an equivalent number of the same crypto asset in the future, providing liquidity to a protocol, wrapping tokens and loaning assets.

Cointelegraph asked the ATO for clarification on whether staking Ether on Lido or transferring funds via bridges to layer 2 networks incur CGT. The ATO responded that the tax consequences depend on the steps taken on the platform or contract, and the relevant surrounding facts and circumstances of the taxpayer who owns the cryptocurrency assets.

In effect, this means that if an Australian DeFi user bought Ether for $100 and then staked it or sent it via a bridge to an L2 when the price is $1,000, they would need to pay tax on $900 “profit” even though they haven’t sold the ETH or realized a profit. Liberal Party Senator Andrew Bragg noted that the Labor government’s delay in releasing the findings of the Board of Taxation concerning cryptocurrency taxation has created complexity and uncertainty for crypto users in Australia.

Koinly head of tax Danny Talwar believes that a transfer via a bridge may incur CGT, depending on the change in beneficial ownership. He added that liquid staking would be a CGT event as the ATO views it as a crypto-to-crypto transaction.

Matt Walrath, the founder of Crypto Tax Made Easy, said that he thinks the ATO doesn’t fully understand DeFi and called the new rules “aggressive”. These rules make staking and transferring funds to layer 2 blockchains much more difficult for Australian DeFi users. Walrath argued that beneficial ownership is not transferred when users interact with liquid staking services, so no CGT event occurs. Talwar also noted that the new rules on wrapped tokens lack “economic substance”.

Walrath concluded by highlighting the need for more people in the Australian crypto community to push for sensible tax laws.

Additional reporting by Jesse Coghlan.

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