Australia’s New Crypto Tax: Capital Gains on Wrapped Tokens

The move criticized by some includes considerations for tax treatment of liquidity pool providers, consumers, and DeFi rewards.

Australia's New Crypto Tax: Capital Gains on Wrapped Tokens
Australia's New Crypto Tax: Capital Gains on Wrapped Tokens

The Australian Taxation Office (ATO) has clarified its intention to continue taxing Australians on capital gains when unraveling and wrapping crypto tokens in its guidance on the capital gains tax (CGT) treatment of decentralized finance (DeFi) and wrapping crypto tokens for individuals.

The ATO identified crypto capital gains as one of four primary areas of emphasis in May 2022. Expanding upon the aforementioned effort, the Australian tax authority has recently provided clarification on a multitude of activities that are deemed taxable within its jurisdiction.

The ATO stated in its statement that the transfer of crypto assets to an address that neither the sender nor the recipient can access or that already has a balance will be considered a taxable CGT event.

The ATO further stated, “The capital proceeds for the CGT event are equivalent to the market value of the property you obtain by transferring the crypto asset.”

Nevertheless, the occurrence of the CGT event is contingent upon whether the person documented a capital gain or loss. Consideration has been given to implementing a comparable method for tax liquidity pool providers and consumers, as well as DeFi rewards and interest.

Moreover, the act of wrapping and unwrapping tokens will also have the potential to initiate a CGT event. The ATO stated:

“When you wrap or unwrap a crypto asset, you exchange one crypto asset for another and a CGT event happens.”

The preceding statement clarifies that tokens will be subject to capital gains tax upon sealing or unwrapping, regardless of their price at the time.

ATO, according to Chloe White, managing director of Genesis Block and advisor to Blockchain Australia, violates the technology neutrality principle, which has far-reaching consequences for the financial well-being of young Australians.

Local cryptocurrency exchange CoinSpot was reportedly compromised for $2.4 million in a “probable private key compromise” involving at least one of its hot wallets, adding to the strain on Australians.

According to a previous report, Etherscan shows that a well-known CoinSpot wallet transferred 1,262 Ether worth $2.4 million to the wallet belonging to the alleged offender.

Australia's New Crypto Tax: Capital Gains on Wrapped Tokens

The presumed attacker stole 1,262 ETH from a known CoinSpot wallet. Source: ZachXBT

Subsequent inquiries revealed that the pilfered ETH was being distributed across multiple wallet addresses and exchanged for Bitcoin via ThorChain.