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I have been looking for confirmation on how staking and airdrops are supposed to be treated under tax. I can see lots and lots of older threads on here (particularly May - July) with no answer, which refer to the 'Early engagement team'... but then no resolution which comes from that. The same underlying confusion remains in the published material: https://www.ato.gov.au/General/gen/tax-treatment-of-crypto-currencies-in-australia---specifically-bi...
Has the ATO changed or clarified its position at all over the intervening months? I did find one particular answer from an ATO staffer, which was to only treat staking as income if you have an ABN: https://community.ato.gov.au/t5/Cryptocurrency/Adding-Staking-Reward-as-Income/m-p/92762 ... but given that it runs counter to both the published article and every other thread on here, it would be great to find out if that is official information.
My reservations over the current treatment are 1) they seems unrealistic with regards to feasible account keeping, and 2) they mix assets and income in confusing ways.
I have about 10 different staking coins in my portfolio and recently recieved the massive UNI airdrops that most of the crypto sector did as well. I will treat Serum (SRM) as the most extreme example here though:
Does this all sounds like a correct interpretation of the ATO's guidance article?
In general, I think it would be much simpler to allow people to utilise CGT without considering staking as income, because it will:
If you are worried about it being exploited... maybe restrict staked and airdropped assets (or crypto in general?) from CGT discounts for 12+ months of holding? Keeping them all at a flat 30% tax rate seems pretty simple to me, and simple is better.
Staking rewards and Airdrops can be complex and accordingly we recommend contact our Early Engagement team so that we can help you with your particular circumstances and give a more detailed answer. As you have seen we have information on our website at: Staking rewards and airdrops.
I very much share your concerns, it is very difficult to accurately record staking rewards multiple times a day. There should be an easier way to do this. The ato will have to figure something out, especially with more people using staking that crypto companies are making easier and easier for normal people and not only early adopters.
In my opinion there will be a massive wave of complicated crypto transactions incoming from a lot of people over the next 3 to 5 years, especially with how easy companies like binance, swipe and cryptodotcom make it to use staking, receive aidrops, spend with crypto using a visa card etc..
Something has to be done, and the ato is the only one to take action.
There is a very simple way to do this in Captial Gains Tax and/OR... if holding a Sole Trader ABN for your business of Cryptocurrency Trading (financial investing is confusingly the only option to select on the e-tax form anyway, so the distinction between trading and investing is further tested).
1. It is absolute Captial Gain with a cost base of 0, WHEN you trigger a CGT event capturing this profit by disposing of it for either cryptocurrency or AUD (or USD I guess but you'd still record this event in AUD equivalent, and to clarify, I do mean USD, not USDT which comes under cryptocurrency to the same effect though just semantically).
Trading Stock (ABN)
2. It is only added to tax if your closing stock is more than your opening stock minus your purchases and other costs... IF you use the Cost based method of evaluation, as it cost 0 so has 0 value, again until disposed of (Cost is cost to acquire and fees... but fees are deducted from quantity of trading stock so this is already accounted for as a depreciation of stock on hand, without disposal to other income).
But you can use replacement value EOFY, so then you keep all records of air drops and staking rewards as a batch spread sheet, for records, but don't need to evaluate Market selling value every time you acquired these rewards along side. You just keep these records encase you are queried. So you just sum up all staking rewards for this year, and give them the Trading Stock on hand value of how much it would cost you to buy that same quantity at market price EOFY.
All you're trying to do realistically... is capture in your tax, your profit from carrying on the business of trying to make profit/money.
So as Capital Gains once again, it is profit the moment you dispose of these rewards and your cost base is 0, so it is taxed 100% or 50% if you held these for 12months (idk if you want to use LIFO FIFO or what ever, if you sell 'some' under 12 months, but I doubt it'd matter with a cost base of 0 no matter which method).
If you have an ABN and are carrying on this business, then... it is either taxed as income by the difference between your closing stock being more than your opening stock or more than your costs/purchases.
Opening stock value of all crypto held = 1000 AUD
Costs/Purchases of new crypto this year = 200 AUD
Closing stock value = 8000 AUD
Profit is income here not CGT, and it is 6800 income.
OR... in this example, you sell 8000 AUD worth of stock to AUD and put it in da bank.
Then your business has 8000 other income, BUT... your 1000 AUD is no longer reflected in Closing stock value, as you don't have it on hand (and you do a stock take to capture this). And the 200 AUD is still an expense so your Stock income is -200 AUD.
So it is 6800 AUD in the bank income, or 6800 AUD as trading stock still held, once again assessed as income tax.
OR repeating myself, it is the value of your rewards at point of disposal NET over the year, Capital Gains Tax. (profit because 0 cost base, and your crypto you were staking is accounted for when you disposed of something else to aquire it, and its appreciation or depreciation in value is accounted for when you dispose of it... and would subsequently cease getting rewards... if you keep getting rewards after disposing of your staking for what ever lock drop reason... it is just again 0 cost base capital gains... when disposed of those rewards).
Basically choose one and the difference is income tax or CGT. But for the trading stock method, you need to validate having an ABN for this business of cryptocurrency trading.
Thanks for putting in the effort on your reply @treefairy
I will certainly consider registering a business if the ATO indicates they intended it to be simpler for businesses to trade this way.
I'm curious if you've directly read or considered the article I linked above though? It seems pretty unambiguous to me that the 'Staking rewards and airdrops' section declares airdrops and staking rewards MUST be considered 'ordinary income', even if you can also later use them in a CGT event.
"The money value of those additional tokens is ordinary income of the forger at the time they are derived."
Sure I read it, I think the term 'forger' is made up and this only covers one or two manners of POS, there are many different distribution methods this does not capture.
I'm not being smug, I just have a lot of experience in this area... unfortunately. And I believe what I suggested is a much more appropriate taxation method. Making something which is simple by design complicated, by forcing people to track AUD estimated value the moment they mint a block (in this case)... gives no leverage to the taxation department (there is no pro of doing it this way) and it only serves to bog down an often small business... whose time and attention is required elsewhere constantly... to not miss a chain swap, news event, or just life in general.
Applying CGT when staking rewards are disposed of with 0 cost base, serves the ATOs intentions to tax profit well. And allowing it to be income confuses the distinctions between investing and trading further.. and should be reserved for those with an ABN that captures holistically all the intricacies associated with being involved in cryptocurrency as a business (with multiple facets of income and ways of acquiring and profiting from cryptocurrency: futures, competitions, air drops, rewards for community involvement. etc endless really)
To try and classify one caveat like this creates more problems than it solves as it needs to be increasingly more complex to adapt to the changing cryptospace enterprise as a whole.. which they ... to be honest don't seem to want to do to this depth... and don't need to if 'rewards' outside of trades are just 0 cost base CGT events, or trading stock income.
If they want to make delegated proof of stake specifically income, then cryptocurrency profit itself should be income and only assessed at point of sale back to AUD.
The leniancy of allowing one captial asset to be income in one specific instance but not generally... is what has troubled me the moment I started trying to be taxed in my efforts to make money through cryptocurrency... to be honest... I stopped my business all of 2018/19... because after wasting 3 months trying to calculate every single miniscule trade burnt me out... on like 30+ exchanges... I realized it wasn't worth the time or stress... and I needed to finish my bachelor degree in art or I was wasting money there too.
Since finding the trading stock method, i've started my business up again this year... and have focused on it solely now i've mostly finished my study. As a business person now trying to prioritize... I don't have time for something like... telling the ATO that I made 0.00005 cents income of this today, and 0.05 of this on that same day, and 0.0007 of this and repeat this over 300+ times in my case, where I spam facuets, get air drops in discord, stake on exchanges, did stake in some wallet. Every single day of my business life would be a F-ing nightmare to put it politely.
So i'm summing up all my rewards as trading stock, and they become income anyway... and I get to choose which method I use to value them... as they tie in with my activities of running a business for profit... as with trading and investing (holding some things). I mean to say CGT doesn't work for me, because of the complex different ways I treat different crypto accordingly, imagine like... trying to figure out AMPLforth, as ONE example of maaaaany. Where as... all of the ways.. in which I hold some things, trade others, sequester rewards, gamble, contribute to cryptospace... all get wrapped up into one important thing... HOW MUCH CRYPTO do I HAVE EOFY and how much profit have I made over the year. This is easy to figure out and record.... ... as I only really store my holdings in a couple main places and all deposits and withdrawals for arbitrage or events are easy to track being public ledgers.
Cryptocurrency for me is a mixed diverse bag of activities, and that complexity can be captured easily with trading stock and having an ABN. Businesses are complex like that. My entire business needs to be ABOUT cryptocurrency, not ABOUT being tax conscious and active every single day for hours a day trying to be taxed in that moment when EOFY is all that matters (did my business succeed this year in not losing money).They are treating a staking reward like you have sold an asset in your retail business on that day, but you haven't, you have acquired new stock and are yet to gain anything from that.
And to be clear .. it sounds like my job would be super complex if I followed that articles distinctions right... and i'm not even sure if i'm making profit (i'm probably not even over the tax threshold tbh) at the end of all of that effort.. because i'm too busy accounting for miniscule additions to my daily automated setup... to really track the macro of what is going on. I might be spending 2 hours getting prices for tiny stakes (I wouldn't have a life) and many rewards with complex reporting interfaces that are difficult to copy so would need to be screen-shot... and input into spreadsheet manually only to miss some news and lose 25% of my overall value in that moment, because I wasn't on top of my trading.
I'm not saying these rewards shouldn't be taxed as income... i'm saying market price at the moment it is gained isn't the way... and the same tax or more... is collected if I do it at EOFY replacement value.
I guess they are bothered by if people use COST for trading stock... as it cost nothing... but it will always be taxed eventually when it is sold to income AUD, or a cryptocurrency addition could be that cost price cannot be used for rewards with 0 cost base. Or make a Market stock value EOFY rather than replacement, value if sold in the normal course of business, so then we can add in deductions of sending it to an AUD exchange (network fees and trading fees).
Classifying it immediately as income the moment acquired is just not viable and deters people from making money all the ways they can in this simplified complex market we have now. Mostly because the record keeping is a nightmare, but also because it isn't the best option anyway.
I think if you used COST for trading stock, it is effectively the same as CGT, just in the end it goes onto income. But it only becomes profit if sold (which is effectively the truth of the matter anyway)... and I doubt anyone gets staking rewards over 5000 AUD in a year anyway so wouldn't need to do a stock take if it is treated seperately... well maybe for airdrops like UNI, but then I think it is responsible for you to use their method for values OVER a threshold... like idk. 20AUD in one stake/airdrop reward. It is the hundreds of tiny incomes that would be a nightmare... as they aren't point of sales, they are acquisitions.
So there is room for improvement. I think CGT is a great way to kill your cryptocurrency business personally. Imagine paying tax on money you never had as income, and would need to go into debt and stop doing business... to account for the wild fluctuations in the cryptocurrency market you never managed to capitalize on as a trader. < this is also a major reason why Trading Stock is rational and works.
Thanks again. I think what you are expressing is how I want it to work. Simple is sensible and better for everyone.
My worry is the ATO doesn't want that.
I think they do. They just want to make sure they have their bases covered. They were scrammbling in 2016/17/18 to make cryptocurrency taxed, to capture that profit coming into the country from overseas... and it has been a bit bumpy, but i'm an optimist and don't beleive they nefariously want to collapse australian traders business of bringing money into our country.
America has completely hampered their traders and caused an environment where they are more likely to lose USD to overseas. By making it so very difficult to even participate, and missing out on all the advents, but catching the pitfalls... like forcing their traders to be secondary buyers on exchanges, missing issuances of coins/tokens.
Shares need to hit the market and come into existence some how, the beauty of cryptocurrency is that this side of business is open to laymens, not just specifically offered to mogul investment firms... it is a good free market, where you can simply dip into and dip out of interests and risks at will.. instantly (more than often).
I think if businesses like JB-HIFI tokenize their retail, they could do away with shares and capitalize on the ability for crypto to act as both shares and currency simultaneously. Imagine being able to spend JBHIFI shares for stock in store, which then adds value to it with function, backed by the business credentials as well.
This thing can take off... and it won't be at the detriment of the financial market, but it will be at the benefit of the people economy, corporates will catch up and figure out how to **bleep** over people with it like normal. But for the moment... it is a good thing to be involved in.
I personally don't think it is ready for adoption yet as it is ironically less secure and less culpability is in place... but... crypto wil stay around for many reasons as it has too many functions the capitalist future needs... like bottlenecking AI. VISA .etc has a monopoly, which I don't think will go away.. regardless of how currency is stored... but currency is only riding on ledger technology to validate its development and to force people to value it and its development by literally retaining what people are told to value most... money.
I mean how easy is it... that at the EOFY... I login to my accounts on that day.
Spread sheet every cryptocurrency I own, with columns like "where", "quantity", "value".
Sum it up... and BAM it goes on my taxable income.
It is so much easier than wrapping ones head around LIFO, FIFO for thousands upon thousands of micro trades.
Considering there is no formal concensus across exchanges of how they deliver your trading history (in what format).
Trying to wrangle data from 30+ sources into one easy to understand place for the ATO records, is enough work without needing to retroactively assign an AUD estimated value (which isn't accurate as it discludes costs of bringing it to sale).. for CGT.
I mean... if they allow me to account for the cost of 'needing to sell' this reward on the day and time you get it... then every staking reward would be a capital gains loss for me... because the cost of withdrawing every minute fraction is not possible... but if we are just 'simulating' it... then technically i'd be in debt. And the same goes for it instantly being income, when there is no capacity for a point of sale at those quantities without fees outweighing the action you're required to emulate.
I'm just pointing out that by defining it like this, they are more open to exploitation than allowing common sense to dictate being taxed for profit you actually make that year (as it wraps up all of those conditions specific to the nature of the complex activity).
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