Any crypto tax experts in the house?

Just wondering if there are any crypto tax experts or crypto enthusiast accountants here?
Space moves crazy fast so thought it would be a good idea to get some discussions happening in a running thread on tax treatments within the crypto sphere.

 

I see a bit. The biggest problem is taxpayers who dont maintain decent records on each acquisition, disposal (even exchange of one crypto currency for another is a disposal) and they disregard the foreign exchange value of trades. They argue - I didnt bring any currency back to Australia. Dont have to.

There are some cyrpto calculators now in use which do help. Worst ones are those who use US calculators.

 

Hi Paul. I understand most of the issues people raise revolve around basic swapping or trading of cryptos, which in my eyes the rules are pretty clear cut and are in-line with traditional equities trading.

I'm more interested in the more fringe use cases that most do not touch and how they are treated.

Would like to hear your take on some of the following scenarios?

• Custody. If a user relinquishes custody does it trigger a taxable event? Does the events surrounding how a token is relinquished determine how it is treated?
• Wrapping - This ties in with custody. Does wrapping tokens or unwrapping them trigger a tax event? Will receiving the wrapped token be taxable and at what cost-base?
• Staking - Another one that ties in with custody where a user relinquishes to a smart contract. If you stake a token will the act of relinquising custody trigger a tax event? When you un-stake and receive custody again will this be considered as aquiring an asset?
• Pivoting - If a project pivots and requires old tokens to be burnt or swapped for tokens native to the new project, will it trigger a taxable event?

Starting off with these questions. Happy to expand on the technical side of it if unfamiliar.

 

Your comment also got me thinking. What happens in those situations where a person did not keep adequate records or did not file in previous tax years? How are they treated by the ATO?

 

• Custody. If a user relinquishes custody does it trigger a taxable event? Does the events surrounding how a token is relinquished determine how it is treated?

Yes. A CGT event. Perhaps more than one type even. But taxpayer must choose the most approporiate. C1 / C2 ?

• Wrapping - This ties in with custody. Does wrapping tokens or unwrapping them trigger a tax event? Will receiving the wrapped token be taxable and at what cost-base?

Depends. A change of custodian is not typically a CGT event. eg different wallets are not a CGT event. Wrapping will generally change a parcel of bitcoin and a disposal of one asset (BTC) and acquisiotion of another (WBTC) may occur. WBTC allows cross platform trades I beleive. I have encountered it just once. The ATO did consider it a disposal. It is in essence an exchange. Like moving USD to AUD and back to take advantage of exchange rate spreads changing over time.

• Staking - Another one that ties in with custody where a user relinquishes to a smart contract. If you stake a token will the act of relinquising custody trigger a tax event? When you un-stake and receive custody again will this be considered as aquiring an asset?

Yes . Staking is income, sort of like interest paid to a owner of an investment. The act of staking isnt the concern. The receipt of staking rewards is income.

• Pivoting - If a project pivots and requires old tokens to be burnt or swapped for tokens native to the new project, will it trigger a taxable event?

Hmmm. Pivots arent actual trades. More a price analysis charting tool concerning trading. If you are trading perhaps the CGT rules dont apply if you adopt trading methodology.

You could seek ATO guidance. They are providing technical responses quickly at present.

 

Appreciate you expressing your viewpoints @Paul.

Yes your understanding of wrapped btc (wBTC) is correct. BTC and eth are both separate blockchains and by nature are not compatible. Wrapping was developed in order for btc holders to interact with the eth network by staking their own btc. I can see how it can be considered disposing of an asset to acquire a new one as there is a perception that some sort of link is broken. However, your comparison of converting from USD to AUD is not quite correct. wbtc is pegged identically to btc. There is literally no variation or exchange difference between the 2. The only cost is gas to wrap and unwrap. 1 btc will always wrap into 1 wbtc and 1 wbtc will always unwrap into 1 btc. Do you think the fact it is pegged 1 to 1 enough grounds to seek some sort of CGT waver through a private binding ruling?

I feel you will see more of these into the next bull as btc holders start to look at leveraging off their holdings without having to sell their btc.

What about a scenario where I personally do not wrap the btc. Instead I deposit into a smart contract thereby relinquishing my custody and control to the smart contract. The smart contract is designed to automatically wrap the btc and stake it to earn interest. Whenever I want to gain access to my btc I call on the smart contract to deposit the staked btc back into my wallet. I understand the interest earned will be fully taxable as income but what about the btc? Would the btc be subject to CGT at the point of staking on the smart contract? I believe a similar real life scenario would be depositing btc to a fund manager who then does the trading. I don't care how they go about this (wrap, stake, trade) as long as I gain interest. And when I want my btc back I just ring them up and take back custody. The fund manager would be analogous to a smart contract.

Really appreciate your comments and the thought invoking discussions.

 

I would seek advice. I cant provide opinions which may be misunderstood as advice. If you exchange a true coin for a different right i suspect you have exchanged a cgt asset for a different right...rights are a cgt asset. But a new asset. A cgt trigger