Author: RichATO(Community Support)Community Support 2 Dec 2021
Hi @FoxHoundCo
In the scenario you describe, each reward you receive as a forger for staking your cryptocurrency tokens via a PoS is considered to be derived income for tax purposes.
It doesn't matter that you are not receiving actual tokens back in your wallet.
Our view is very similar to re-invested dividends from shares to buy more shares in this context. Investors who earn dividends and have them automatically re-invested to buy more shares have to declare those dividends as income, even though the money doesn't hit their bank account.
You need to keep a record of every staking reward as a fraction of a coin and convert it to AUD at the time it occurs. Each of these is derived income.
Author: FoxHoundCo(Enthusiast)Enthusiast 3 Dec 2021Hi Rich, appreciate the reply. In some instances these rewards are derived 3 times a day, which as you can appreciate creates a huge administrative burden. Using the dividend example you mentioned earlier, when a dividend is received under a DRP mail correspondents is generally sent with the rate and value at the time the event occurs, which makes record keeping much more easier. I appreciate the need for the fractional amount to be converted at the time it is considered derived, however especially in the instance of an investor, we are talking about 1095 times a year compared to the 2 times per year for a DRP. I think a monthly or at the absolute most a daily valuation is more appropriate and fair.
ATO Certified Response
Author: BlakeATO(Community Support)Community Support ATO Certified Response6 Dec 2021
Hi @FoxHoundCo
We appreciate your thoughts on how you'd like staking rewards to be assessed. Unfortunately, crypto is a very volatile world, so the value can change drastically during even a window of one day. While we administer the rules, we don't make them, so we're not able to change them. You can approach your local MP in relation to current tax laws.
Meanwhile, you'll need to calculate the value at the time the staked rewards are derived using the most accurate measurement available. There is accounting software available that can help you keep track if your platform doesn't already. If you lose access to your crypto or are a victim of scam/theft, you can claim a capital loss. We talk about this on our page for loss and theft of crypto.
Author: FoxHoundCo(Enthusiast)Enthusiast 3 Dec 2021Additionally, Can you confirm the following: Income earnt from staking throughout the year amounts to $100,000 calculated as it was derived (this has not been realized but just accumulated in the relevant crypto). Therefore this 100,000 would be considered Ordinary income at the end of the financial year. Now due to the volatile nature of crypto let us assume that it is not worth $100,000 at 30 June but it has crashed and worth only $10,000. What you are telling me is that I will still need to pay tax on the $100,000 even though that money was never realized and it now not even worth that and if I do sell it will be treated as a capital loss that wont even offset against the enormous tax bill that can't be paid. It seems like a very very unfair arrangement that the individual investor would be inadvertently caught up with a tax liability because the of the price fluctuation and the losses can't even be applied to this income. Similar to if the crypto was stolen, based on the above you would still be paying tax on income that was never realized and can never be realized in the future and you can only apply it to future capital losses?
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