ATO's DeFi Tax Rules Cause Confusion Among Australian Crypto Investors
Summary:
The Australian Tax Office's (ATO) recent guidelines regarding capital gains tax (CGT) on various decentralized finance (DeFi) transactions have raised confusion among cryptocurrency users. The ATO's guidelines lack clarity on tax implications for activities such as staking Ether on Lido, transferring funds via Layer 2 bridges, amongst other DeFi operations. This uncertainty could lead to Australian crypto investors paying tax on unrealized profits. The tax community has criticized the ATO, stating that the organization doesn't fully understand DeFi transactions and the current regulations are overly aggressive and lack economic sense.
The Australian Tax Office (ATO) has given unclear guidelines about the capital gains tax (CGT) applicability on a broad spectrum of daily decentralized finance dealings. The tax authority couldn't directly answer inquiries from Cointelegraph regarding taxes on staking Ether on Lido or funds transferred through bridges to Layer 2 networks, leaving DeFi users uncertain about tax compliance. The ATO's guidance from November 9 states that CGT applies to token transfers to another address or smart contract that a person doesn't "beneficially own" or if the address maintains a non-zero token balance. Taxable DeFi activities, as per the ATO, include exchanging cryptocurrency for a potential similar amount in the future, providing liquidity to a protocol, wrapping tokens, and asset lending. The uncertainty remains as it's unclear whether staking Ether on Lido or sending tokens via Layer 2 bridges will trigger a CGT event. The ATO vaguely commented that tax implications hinge on the platform or contract actions and the specific circumstances of the cryptocurrency holder. This ambiguity leaves investors in a slipstream of potentially unintended effects of this obscure new directive, untested in court. Consequently, Australian DeFi users may have to pay tax on gains that aren't "real" profits. The Government delayed the release of the Board of Taxation's proposed crypto taxation rules twice, leading to complexity and uncertainty for Australian cryptocurrency users. Koinly's head of tax, Danny Talwar, opined that transfers via a bridge could cause a CGT event, but it largely depends on whether beneficial ownership changes. He also mentioned that liquid staking could possibly trigger a CGT event as Ether could be exchanged for another token. Matt Walrath, the founder of Crypto Tax Made Easy, criticised the ATO for lacking a comprehensive understanding of DeFi and dubbed the new regulations as “aggressive”. He asserted that beneficial ownership transfer doesn’t occur when using liquid staking services; therefore, CGT may not apply. Matt also added that the ATO's regulations on wrapped tokens imply that transferring ETH to a L2 could be a tax event. He and Talwar propose that current rules around wrapped tokens don't make economic sense and urge more members from the crypto community to advocate sensible tax laws.
Published At
11/24/2023 1:09:09 AM
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