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Proof of Stake vs Poof of Work

Initiate

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Proof of Stake and Proof of Work are both different types of "Consensus systems" that provide rewards.

One requires you to lock in captial (POS) and the other requires you to put in captial to specialized hardware and perform work. 

Both system will result in ongoing costs - eg costs to run a server ( POS ) and electricity costs for mining and depretiation of assets (POW)

 

The ATO recently updated their guidance on POS mining, but this new advise is inconsistent with whats provided by this crypto accounting company. https://koinly.io/guides/crypto-tax-australia/

see Section 11

It is also inconsistent with previous versions of the ATO website on crypto currency taxation.

 

The ATO section of crypto currency had a section on mining, which stated two different  ways of treating it. 

  1. mining as a hoby ( costs cannot be deducted ), where rewards are new assets with a zero cost base.
  2. mining as a buesiness ( costs and depretiation can be deducted ), rewards new asset with market value as cost base + considered income for the buesiness

This section has been removed, but a link to the forum post with an answer is refferenced in the above guide. 

 

My question is:

 

  1. why is POS and POW treated differently, when they same thing essentially.
  2. Does the Hobby vs Buesiness treatement apply to Proof of Stake (POS).

In terms of compliance, treating all new rewards as a new CGT asset with a cost base of zero is a lot simpler for people just running a POS node on their PC eg doing it as a hobby.

 

Otherwise, people would need to keep detailed records every time they are rewarded, might happen frequently and keep records of the market price at that time. They would also need to track electricity and internet useage plus include running the POS software eg if its running on the cloud.

 

I feel that if POW has this treatment the same should apply to POS, outlined

https://community.ato.gov.au/t5/Cryptocurrency/Starting-to-mine-bitcoin-how-do-I-declare-it-all/td-p...

 

Note, i am not talking about airdrops - which are a one off event.

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Most helpful response

Community Moderator

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Hi @ta32 

 

We would suggest that you contact our Early Engagement area for mor information on this one.

 

KylieS

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Initiate

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here is a post https://community.ato.gov.au/t5/Tax/Mining-cryptocurrency/ta-p/4599

This used to be stated on the ato guidance on crypto currency under a mining section until it was removed

However i believe the treatement should be applied to staking as well

Initiate

Replies 0

Ok I was wrong about the mining part. The page was re-written and there is a link to an official forum post referenced bellow. 

https://www.ato.gov.au/general/gen/tax-treatment-of-crypto-currencies-in-australia---specifically-bi...

Under See Also: "Mining cryptocurrency" 

In the mining crypto currency link, there are two ways of treating mining as a business or as a hobby - which have different reporting requirements. 

 

From a technically standpoint, both mining and staking are a form of 'consensus mechanisms'

 

Therefore, why does staking have a special treatment where the reward is treated as ordinary income of a 'stock', whereas for mining its treated as receiving a new asset with a zero-cost base (if mining as a hobby). 


To recap can we treat staking as a hobby, if we are running the staking software on our personal computer at home Therefore, forgo deducting operational costs and treat the reward as being acquired with a zero cost base?

Most helpful response

Community Moderator

Replies 0

Hi @ta32 

 

We would suggest that you contact our Early Engagement area for mor information on this one.

 

KylieS