The Australian Taxation Office (ATO) has made it clear that its capital gains tax on crypto products will also apply to wrapped tokens or token interactions with decentralized lending protocols. This means that if you are an Australian crypto investor, you will be taxed on capital gains when wrapping and unwrapping tokens.
Major Setback To Australian Crypto Holders
This clarification comes as a major setback for crypto holders in Australia. In May 2022, the ATO outlined crypto capital gains as one of four key focus areas. NFTs were also mentioned as an asset class to be scrutinized for correct tax reporting.
The ATO further clarified that the transfer of crypto assets to an address not owned by the sender or one that already holds a balance will be regarded as a taxable CGT event. The capital proceeds for this event are equal to the market value of the property received in return for transferring the crypto asset.
Wrapping And Unwrapping Tokens Subject To Capital Gains Tax
Additionally, wrapping and unwrapping tokens will also trigger a CGT event, according to the ATO statement. When you wrap or unwrap a crypto asset, you exchange one crypto asset for another, and a CGT event happens. The capital proceeds for this event equal the market value of the wrapped token at the time of exchange.
Breach Of Technology Neutrality Principle?
Chloe White, managing director of Genesis Block and advisor to Blockchain Australia, stated that the move by the ATO violates the technology neutrality principle and impacts the financial future of young Australians. She called on the government to step in and correct these errors made by the ATO.
Criticism from the Crypto Community
The move has faced criticism from the crypto community, with concerns about its impact on Australians using DeFi. Michael Bacina, Digital Assets lawyer at Piper Alderman Lawyers, stated that being able to wrap tokens is a valuable cross-chain interoperability tool and triggering a tax event is not something users would expect when using crypto-assets.
Hot Take
Australia’s Board of Taxation is scheduled to review the tax treatment of digital assets, including comments on capital gains tax on crypto. The review will be submitted to the government by February 29th, 2024. Additionally, recent exploits of exchanges like CoinSpot have added stress to crypto holders in Australia due to potential losses.
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