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Home » Australia Enforces Capital Gains Tax On Wrapped Crypto Tokens

Australia Enforces Capital Gains Tax On Wrapped Crypto Tokens

Hania by Hania
November 15, 2023
in Altcoin News, Bitcoin News
Reading Time: 2 mins read
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Australia Enforces Capital Gains Tax On Wrapped Crypto Tokens
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Summary:

  • ATO’s recent guidelines impose capital gains tax on wrapping or unwrapping tokens, adding complexities to the tax landscape for Australian crypto investors.
  • Industry criticism emerges over the ATO’s move, while security concerns amplify with reports of a significant hack at a local crypto exchange, CoinSpot, compromising millions of dollars worth of crypto assets.

Australia’s crypto investors face a significant blow as the Australian Taxation Office (ATO) announced the imposition of capital gains tax (CGT) on wrapping or unwrapping tokens, regardless of their valuation at the time of the action.

ATO’s Crypto Taxation Guidelines Unveiled

The ATO recently released guidelines detailing the capital gains tax treatment concerning decentralized finance (DeFi) and the process of wrapping crypto tokens for individual investors. This clarifies the tax implications for Australians engaging in these activities.

The ATO had previously identified crypto capital gains as one of its primary focus areas back in May 2022. Expanding on this initiative, the tax authority has now outlined specific taxable actions within its jurisdiction. According to their statement, the transfer of crypto assets to an address that isn’t under the sender’s control or already holds a balance will be considered a taxable CGT event.

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The ATO elucidated, stating, “The capital proceeds for the CGT event are equal to the market value of the property you receive in return for transferring the crypto asset.”

Australia Enforces Capital Gains Tax On Wrapped Crypto Tokens

However, the triggering of the CGT event will depend on whether the individual recorded a capital gain or loss. This approach is also being contemplated for the taxation of liquidity pool users, providers, and DeFi-related interest and rewards.

Also Read: Central Bank Emphasizes Australian CBDC’s Role In Enhancing Payments And Tokenization

Unveiling The Taxable Wrapping: ATO’s Standpoint

In a notable declaration, the ATO specified that wrapping or unwrapping tokens will trigger a CGT event. Their statement explicitly asserts, “When you wrap or unwrap a crypto asset, you exchange one crypto asset for another, and a CGT event happens.” This assertion makes it clear that the act of wrapping or unwrapping tokens will incur capital gains tax, irrespective of the tokens’ market value at the time of the action.

Industry Voices And Ongoing Challenges

Chloe White, the managing director of Genesis Block and an adviser to Blockchain Australia, criticized the ATO’s move, alleging that it violates the technology neutrality principle, ultimately impacting the financial prospects of young Australians.

Furthermore, the Australian crypto space faces added pressures with reports of a hack at the local crypto exchange, CoinSpot, resulting in a probable private key compromise leading to a loss of $2.4 million.

Australia Enforces Capital Gains Tax On Wrapped Crypto Tokens
Source: ZachXBT

Investigations into the incident revealed movements of stolen Ether, worth $2.4 million, being converted to Bitcoin through THORChain and distributed across various wallet addresses. This development highlights the challenges faced by the Australian crypto community, not only concerning regulatory taxation but also in terms of security vulnerabilities within local exchanges.

Tags: crypto newsCrypto tokenstax on crypto
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Hania

Hania

Hania is a 30-year-old blogger who used to be a teacher before entering the world of writing. She is originally from India and has been writing blogs on various topics for 2 years now. Hania is particularly interested in exploring the intersections of finance, technology, and cryptocurrency. Her experience as a teacher has given her unique insights into the ways in which digital media can be used to facilitate learning and engagement. Through her writing, Hania hopes to share her knowledge and learning of crypto industry with everyone.

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