The Australian Taxation Office’s Stance on DeFi and Wrapping Crypto Tokens
The Australian Taxation Office (ATO) has recently provided guidance on the treatment of decentralized finance (DeFi) and wrapping crypto tokens for individuals, reaffirming its commitment to taxing Australians on capital gains when wrapping and unwrapping tokens.
Back in May 2022, the ATO identified crypto capital gains as a key focus area. Expanding on this, the tax authority has now clarified several actions that are considered taxable within its jurisdiction. The transfer of crypto assets to an address not controlled by the sender or to an address with an existing balance will be considered a taxable CGT event, as per the ATO’s statement.
According to the ATO, the capital proceeds for a CGT event are equivalent to the market value of the property received in exchange for transferring the crypto asset. However, whether a CGT event is triggered will depend on whether the individual records a capital gain or loss. The ATO is also considering a similar approach for taxing liquidity pool users and providers, as well as DeFi interest and rewards.
Furthermore, wrapping and unwrapping tokens will also trigger a CGT event, with the ATO stating: “When you wrap or unwrap a crypto asset, you exchange one crypto asset for another and a CGT event happens.” This means that wrapping or unwrapping tokens, regardless of their price at the time, will be subject to capital gains tax.
Chloe White’s Response and CoinSpot Hack
Chloe White, managing director of Genesis Block and advisor to Blockchain Australia, has criticized the ATO for breaching the technology neutrality principle and impacting the financial future of young Australians.
In addition to these taxation pressures, local crypto exchange CoinSpot was reportedly hacked for $2.4 million due to a “probable private key compromise” in at least one of its hot wallets. Etherscan data showed that 1,262 Ether (ETH) worth $2.4 million was transferred from a known CoinSpot wallet to the alleged hacker’s wallet. Subsequent investigations revealed that the stolen ETH was being exchanged for Bitcoin (BTC) via THORChain and distributed across various wallet addresses.
Hot Take: Australia’s Crypto Tax Landscape
Australia’s tax treatment of DeFi activities and token wrapping is becoming increasingly clear with the ATO’s recent guidance. The tax authority’s stance on taxable events related to crypto transfers emphasizes the need for individuals to stay informed about their tax obligations in this rapidly evolving space. The hack at CoinSpot further underscores the importance of robust security measures within the crypto industry to protect both exchanges and their users from potential breaches.
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