Australia will impose capital gains tax (CGT) on digital asset transactions that include interactions with liquidity pools and providers, wrapped tokens and decentralized lending platforms.
The Australian Taxation Office (ATO) published the new guidelines last week, building on its commitment to expanding its CGT tax base. It also follows a warning to investors that they must report all capital gains and losses on digital assets, including non-fungible tokens (NFTs).
The ATO has confirmed that it intends to continue charging capital gains tax when individuals box and unbox their own tokens on-chain. https://t.co/HD1dSULJdN
– Genesis Block Advisory (@GenesisBlockAus) November 14, 2023
Wrapped tokens are among the areas the ATO is targeting with its new guidelines.
“When you box or unbox a crypto asset, you exchange one crypto asset for another and a CGT event occurs. The capital proceeds for the CGT event will be equal to the market value of the wrapped token at the time of exchange,” the tax authority said.
ATO is also pursuing the decentralized finance (DeFi) ecosystem, which it defines as “a blockchain-based form of finance carried out without reliance on a financial intermediary (peer-to-peer).”
The tax authority states that most lending and borrowing events in DeFi will result in a CGT event. These include cases where one party exchanges one token for another or surrenders the token for the right to receive it at a later date.
ATO says a CGT event occurs when a user transfers a digital asset to an address “that you do not control” or “that already has a balance of the same fungible crypto asset.”
“The capital proceeds for the CGT event will be the market value of the property you receive in return for the transfer of the crypto asset. This can be another crypto asset or a right.”
The agency also considers it a CGT event when a user deposits or withdraws digital assets into a liquidity pool. Users who regularly receive digital asset rewards from a DeFi platform must declare their value as taxable income at the time of receipt, ATO added.
The Australian digital asset community has criticized the new taxes, which many believe will hinder rollout.
Young Australians are once again being left behind. https://t.co/5jroLMsXS7
— Chloe White (@ChloeWhiteAus) November 14, 2023
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