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_Tom_107798(Newbie)Newbie
4 June 2021

Scenario: A user buys 1 xyz coin, worth $1. They stake this coin and earn 1 more xyz coin (also worth $1). The user now has 2 xyz coins worth a total of $2

Under your guidance for staking, the $1 earnt through staking is taxable as an income. But in addition, the cost base was zero, and so under the CGT rules, this same coin earnt in staking is also taxed as a capital gain of $1.

Lets assume the highest tax bracket. This would mean that this 1 xyz coin earnt through staking is charged 45c tax for staking income (as ordinary income), and 45c Short CGT tax for disposal (assuming the coin was disposed when earnt and therefore not subject to CGT discount).

So have I understood this correctly that the ATO has assigned a 90% tax rate on staking scenarios where individuals earn an ordinary income over >180k?

And if so, how are you legally permitted to charge CGT and Ordinary income rules concurrently to a single asset?

3,950 views
6 replies
3,950 views
6 replies

Most helpful response

Most helpful reply

BlakeATO(Community Support)Community Support
7 June 2021

Hi @Tom107798

No, not quite.

If you're an investor in cryptocurrency and receiving staking or airdrop rewards, that amount you earn is ordinary taxable income. In this example, you would earn $1 of ordinary income which is derived and taxable at that time.

However, your cost base isn't zero for that new crypto.The first element of your cost base is the money given to acquire the asset. In some cases, though, you use the market value substitution rule. This includes when you don't incur a cost to acquire the asset. This means that the first element of the cost base of the crypto is then $1. This means you are not double taxed.

There are other costs you need to consider in the cost base as well. These add up and can change the outcome of your capital gain immensely.

You can read about staking rewards and airdrops, and the market value substitution rule on our website.

All replies

Most helpful reply

BlakeATO(Community Support)Community Support
7 June 2021

Hi @Tom107798

No, not quite.

If you're an investor in cryptocurrency and receiving staking or airdrop rewards, that amount you earn is ordinary taxable income. In this example, you would earn $1 of ordinary income which is derived and taxable at that time.

However, your cost base isn't zero for that new crypto.The first element of your cost base is the money given to acquire the asset. In some cases, though, you use the market value substitution rule. This includes when you don't incur a cost to acquire the asset. This means that the first element of the cost base of the crypto is then $1. This means you are not double taxed.

There are other costs you need to consider in the cost base as well. These add up and can change the outcome of your capital gain immensely.

You can read about staking rewards and airdrops, and the market value substitution rule on our website.

_Tom_107798(Newbie)Newbie
7 June 2021

Interesting thanks.

When you say "The first element of your cost base is the money given to acquire the asset". What is the definition of 'gave'?

So in an example, if I use $100,000 of Ether, and acquired $5000 of the asset through staking, then do I immediately have a $95000 CGT loss on the asset?

Considering you currently have to forfiet Ether to stake, then this seems to be an immediate tax loss?

AriATO(Community Support)Community Support
9 June 2021

Hi @Tom_107798

@Blake was referring to the first element of the cost base which is money paid or property given to acquire an asset. But since this isn't the case when you acquire new assets through staking then the market substitution rule is used.

The $5000 from staking would be ordinary income and the cost base for the new asset acquired through staking would also be $5000 when you apply the market substitution rule. This would become relevant when you dispose of that asset.

I'm not sure if you mean you'd forfeit $100,000 to acquire $5000? But in general when you make a CGT loss its because you've made a disposal and the proceeds are less than your cost base.

Please let us know if your concerns weren't quite addressed and we'll do our best to advise further.

In the mean time you can read more about the elements of the cost base on our website.

Ari

Buzz789(Initiate)Initiate
9 June 2022

Yeah I can't believe they manage to pass these ludicrous laws.

I am happy to pay TAX when I sell but if I'm holding a volatile asset and earning rewards in it, then it drops 90% but I don't sell and they TAX me like it is income I could end up paying them more in AUD value then my portfolio is worth.

For Instance I earned 10k in rewards last year they Taxed me around $3,500 but those same rewords I earned is only worth $2,100 now.

The ATO made more AUD out of my Crypto then I did.

Are we able to claim our computers as I have to keep mine running 24/7 to earn my stake rewards ?

We should be able to claim our Home as a office our Internet and our Electricity if they're TAXING it as a income.

RanierW(I'm new)I'm new
1 Aug 2022

Agreed. Staked rewards should only be taxed when selling. The tax rules around this need to be reviewed urgently. Many people will be in this boat as many currencies nosedived this FY.

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