According to Transacting with cryptocurrency | Australian Taxation Office (ato.gov.au) under "Staking rewards and airdrops":
"Some projects 'airdrop' new tokens to existing token holders as a way of increasing the supply of tokens (for example, Pundi X and Tron). The money value of an established token received through an airdrop is ordinary income of the recipient at the time it is derived."
Airdrops can be divided into two categories; participant and involuntary. In participant airdrops an individual must register to receive tokens (e.g. by submitting their wallet address). Involuntary airdrops, however, can occur without the permission or even knowledge of a wallet owner, and tokens (which usually differ from the main cryptocurrency of the particular blockchain) are arbitrarily sent to any active address on the blockchain. Most airdrops are, in fact, of this "involuntary" type.So, is the ATO taking the position that receivers of *involuntary* airdrops must value them at receipt and declare them as income, despite the fact that they were deposited in a wallet address without the owners permission?If so, there are a number of major problems:
1) A significant tax liability can be incurred without any action performed by the individual.
2) A tax liability can be incurred without the knowledge of the individual (for example, if cryptocurrency is stored in a cold wallet which is not regularly checked).
3) Valuation of airdropped tokens at receipt can be impossible because they may not be listed on a major exchange to determine value (which, in fact, would be typical for most new tokens).
This could place cryptocurrency holders in great peril from parties with malintent.Suppose, hypothetically, that I wanted to financially ruin someone that I didn't like. I happen to know their Ethereum wallet address. So, I create an ERC-20 token contract on the blockchain, and a website offering the new token announcing that some lucky Ethereum addresses will randomly receive a large parcel of tokens. I have the token listed on an obscure exchange and then purchase a small number of them at $1 each to establish a value. At 11:59pm on June 30 (to ensure that nothing could be done to dispose of them before the end of the financial year) 10,000,000 tokens are deposited in our "friend's" wallet, representing a notional "income" of $10,000,000. To top it off an anonymous tip is emailed to the ATO (CC'd to our victim) informing them of the "windfall". And so our mark is left with a tax liability of around $4,000,000 with nothing of real value to pay it (even if the tokens could be sold there would be no liquidity).Now, perhaps they would be able (or perhaps not), after much stress, legal argument and expense, to convince the ATO that the tax liability is not valid, but my point is; WHY SHOULD THEY HAVE TO? Noone should be in jeopardy of incurring a tax liability through actions performed by others, which they did not authorise, and which they could not realistically prevent.For this reason I strongly advise the ATO to revise their position on airdrops, or at least differentiate between those which occur via participation, and those which are involuntary.
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