Australia imposes capital gains tax on DeFi, wrapped tokens

Australia will impose capital gains tax (CGT) on digital asset transactions involving 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 digital asset capital gains and losses, even with non-fungible tokens (NFTs).

Wrapped tokens are among the areas the ATO is targeting with its new guidelines.

“When you wrap or unwrap a crypto asset, you exchange one crypto asset for another and a CGT event happens. The capital proceeds for the CGT event equal the market value of the wrapped token at the time of the exchange,” according to the tax authority.

ATO is also going after the decentralized finance (DeFi) ecosystem, which it defines as “a blockchain-based form of finance that is conducted without relying on a financial intermediary (peer-to-peer).”

The tax agency says that most lending and borrowing events in DeFi will result in a CGT event. This includes instances where one party exchanges one token for another or surrenders the token for the right to receive it at a future date.

ATO says that a CGT event occurs if a user transfers a digital asset to an address “that you don’t control” or “that already has a balance of the same fungible crypto asset.”

“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. This may be another crypto asset or a right.”

The agency also considers it a CGT event if a user deposits or withdraws digital assets into a liquidity pool. Users who receive periodic digital asset rewards from a DeFi platform must report its value at the time of receipt as assessable income, ATO added.

The Australian digital asset community has criticized the new taxes, which many believe will hinder adoption.

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Source: https://coingeek.com/australia-imposes-capital-gains-tax-on-defi-wrapped-tokens/