To get a gauge of where Australia’s at in relation to crypto taxation, as well as knock a few misconceptions on the head, Stockhead caught up with Danny Talwar, the Head of Tax at Koinly – a crypto-tax software and portfolio tracking platform.

Talwar was speaking at the inaugural Australian Crypto Convention on the Gold Coast on Sunday, and we called him there for a quick chat.

Yep, on a Sunday. To talk about crypto taxation. Makes a change from banging on about Ethereum’s “The Merge“, anyway.

Taxation, and the government’s regulation of it, is still a hugely important crypto topic, though. And there are definitely some things afoot here in Australia regarding it.

 

‘Huge opportunity to promote innovation’

Hi Danny, what’s going on at the conference we unfortunately couldn’t attend in person? What has Koinly been speaking about there? 

Hey, it’s been a pretty good turnout actually. Among other things, we’ve been focusing on Australia’s changing tax landscape in relation to crypto, that is, digital assets.

Okay, let’s start with that. The government has signalled it’s looking to regulate the industry, including taxation of course. But not until it gains a greater understanding of crypto through its “token mapping” plan. Do you think this is all leaning in positive direction? 

Yes, certainly, I think the announcement of the token-mapping exercise is a good step forward to outlining the Albanese government’s regulation roadmap. And that’s on the back of momentum started by the Liberal government.

With crypto largely still an unregulated space, the Australian government has a huge opportunity to implement regulations that promote innovation and growth of the new digital asset industry. And I think it’s very important they do, in order to remain globally competitive.

It is, however, important that the government can move quickly here as we’re already seeing regulation in other parts of the world take shape, such as the European Union.

“Token mapping” sounds like a monumental undertaking… 

Absolutely, but it’s important to remember this is a very hard environment to navigate. We haven’t really seen these sorts of assets before in the traditional context of finance. So the government is essentially saying they’re going to take a very measured approach, categorising all the various types of digital assets first.

 

‘Most of all, we still need clarity’

What’s your understanding about how taxation will be treated in terms of cryptocurrencies in Australia? Are there any big changes coming that you’re aware of? 

So currently there’s a Board of Taxation review being undertaken with regard to crypto assets. It’s in consultation stage where they ask the industry to respond to what they see the tax issues in the space being which we are currently contributing to. A report based on all this is due at the end of the year, so we’ll know more then.

What do you want to see most of all from that report? 

I think most of all we still need clarity on ATO guidance and tax laws. And I mean on the impending regulations so that we can allow innovation to continue and taxpayers to achieve some level of reassurance when they lodge their tax returns.

Yeah, need for clarity has definitely been the catch-cry from the industry for quite some time now. 

I genuinely think that the industry and the vast majority of investors want to comply. And at the moment, we have a situation where there is lack of guidance from the ATO, and accountants are struggling with it. The Board of Tax review should help with that, though.

Koinly Head of Tax Danny Talwar. (Image supplied)

 

The ATO’s recent crypto-guidance changes

When you say lack of guidance from the Australian Taxation Office (ATO), it has just recently made some new clarifications, though, right? Can you tell us about those? 

Yes, so this month the ATO updated its guidance on the tax treatment of crypto “airdrops”. I’ve written a piece on this, which you can feel free to use.

And we’ll do exactly that. The following is taken from some extra notes provided to us by Danny… 

“The implications for Australian crypto investors are confusing, as this is in the middle of our tax season. For those who have already submitted their tax returns this financial year, this may be an opportunity to amend your crypto tax return, as receiving an “Initial Allocation Airdrop” is now not taxed on an Income or Capital basis on receipt.

“The cost basis on these types of airdrops will now be $0, and any capital gains will apply to Australian crypto investors when these airdropped tokens are sold.

“Some examples from the past year of Initial Allocation Airdrops that may apply include; ApeCoin (APE), Looks Rare (LOOKS), Ethereum Name Service (ENS), Optimism (OP), and Paraswap (PSP).

“The ATO did not make any announcement about their guidance change, and many taxpayers who have already lodged returns will be unaware of the key change. This comes ahead of the Board of Taxation review, which will consider a range of issues in how we tax digital assets with a report to the government due at the end of 2022.”

 

Common crypto tax misconceptions

Okay, let’s move on to a favourite crypto-tax subject. Investor misconceptions. You’d like to think no one actually believes crypto is a tax haven in Australia, because it obviously isn’t. 

Crypto is definitely no place to hide. And that’s because the blockchain is inherently traceable.

But I think the main thing people don’t realise from the current ATO guidance is the number of taxable events that you create just by interacting within the crypto ecosystem.

For example, coin-to-coin transactions. So, you know, if you’re switching from Bitcoin to a stablecoin, or to Ethereum, for example – they’re all individual taxable events. Under current guidance, providing liquidity to a pool may also be a taxable event.

And what about the idea that some assets, such as NFTs (non-fungible tokens) might be somehow exempt from tax. That’s definitely not the case, though, correct? 

So at the moment NFTs are treated as a CGT asset – just like any other crypto asset, such as Bitcoin or GameFi tokens.

Whether that’s the correct treatment? That’s part of what’s currently being debated. It may link right into the government token-mapping exercise. They have to first understand what they are, and what incentives people use them for. For example artwork investments, or through GameFi, and so on.

What else do crypto investors commonly get a bit confused about when it comes to tax? 

Definitely income tax on some components of crypto. Staking rewards, for example, are taxed as ordinary income at market value when received.

Staking rewards are similar to investor dividends, but because crypto can be so volatile, if income tax is owed and the price of token proceeds to fall, it’s ring fenced against the Capital Gains regime. And that then means there is no way to offset losses.

But there are various forms of staking crypto, so it’s important to have a definition of what each of these actually means and how each is different.

Finally, what one piece of advice would you want to give crypto investors looking to sort out their potential tax headache? 

I think certainly people that are holding crypto should use software to track their transactions. It really helps to collate and aggregate the data. The software isn’t a replacement for an accountant, though. So it’s still super important they understand the responsibilities and their tax obligations that arise when they buy and transfer crypto assets.

 

The views, information, or opinions expressed in the interview in this article are solely those of the interviewee and do not represent the views of Stockhead.

Stockhead has not provided, endorsed or otherwise assumed responsibility for any financial product advice contained in this article.

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