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ERC 721 tokens - Crypto Collectables

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Devotee Registered Tax Practitioner

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I'm raising this issue now as I feel it is going to become amore frequent question over the coming yeras

 

An ERC 721 token is a unique smart contract based on the Ethereum network due to the way these tokens can be created with unique attributes a new class of crypto based collectables has started to appear in various markets for trading. Cryptokitties, cryptobots and Gods Unchained being a few examples one single Gods Unchained Card/token was auctioned for over $60,000 earlier this year. So will these fallunder the banner of traditional collectables and will the CGT collectable rules apply?

 

Cost base some of these tokens are sold in packs similar to trading cards hence for my purchase I may get 5 of these tokens is the cost base of the pack attributed equally to each card or can I aportion the cost base on a reasonable basis such as the rarity of each card obviously rarer cards have a far higher resale value.

 

Cost base dillution or nil cost base and rollovers on newly created assets: some of these tokens can be interact to create new tokens , Gods unchained for example i can combine 5 normal cards of the same type to create a shadow card so in this case I would assume all the cost bases of the initial cards roll over to form the cost base of the shadow card ?

Then there are tokens like crypto kitties were a new smart seperate contract is created by the interaction of two other smart contracts ( getting confusing yet). On face value I'd assume the same treatment as a chain split/fork where we have zero cost base on the new asset but would like confirmation.

 

Finally I'm considering starting a business selling and farming these assets I assume such activity would be regarded as ordinary business income

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Devotee

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Hi @DanielH,

 

Thanks for your post - you raise some interesting questions, as blockchain is a very adaptive technology and people are already finding new uses for it.

 

Here on Community, our aim is to help our members find general information on our website to help them manage their tax and super. Given your expertise in this area, recommending you to our guide to the tax treatment of cryptocurrency isn't probably isn't going to answer your questions!

 

Instead, we'd encourage you to submit a private ruling request so we can do more detailed investigation and consider how we think tax law applies to the situation. We aim to reply to all requests within 28 days of receiving them.

 

Thanks, @AmandaE

 

2 REPLIES 2

Best answer

Devotee

Replies 1

Hi @DanielH,

 

Thanks for your post - you raise some interesting questions, as blockchain is a very adaptive technology and people are already finding new uses for it.

 

Here on Community, our aim is to help our members find general information on our website to help them manage their tax and super. Given your expertise in this area, recommending you to our guide to the tax treatment of cryptocurrency isn't probably isn't going to answer your questions!

 

Instead, we'd encourage you to submit a private ruling request so we can do more detailed investigation and consider how we think tax law applies to the situation. We aim to reply to all requests within 28 days of receiving them.

 

Thanks, @AmandaE

 

Devotee

Replies 0

that's a great question. rare pepe included. I personally think of them as tokens too, crypto kitties can actually be sent via MEW (my ether wallet)... outside of the crypto kitty ecosystem as a raw token with no value. but as soon as you sell it i'd personally apply normal CGT rules. the token type would just be crypto kitties. 

I burnt so much gwei during the kitty boom... probably spent 300usd in eth just on gas.

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