Australia’s tax agency, the Australian Taxation Office (ATO), has faced criticism for unclear and “aggressive” rules regarding crypto taxation, particularly in the decentralized finance (DeFi) space. The ATO’s guidance on cryptocurrency taxation, issued on November 9, indicated that capital gains tax (CGT) events occur when transferring tokens to another address or smart contract without “beneficial ownership” or if the address holds a non-zero balance of tokens.
Examples provided by the ATO include exchanging one crypto asset for the right to receive an equivalent number in the future, providing liquidity to a protocol, wrapping tokens, and loaning assets. However, the guidance lacks clarification on DeFi activities like liquid staking or utilizing layer-2 bridges.
Investors are concerned about potential unintended consequences of the vague guidance, as it could lead to taxation even if crypto assets haven’t been sold or realized a profit. For example, staking ETH on Lido or using layer-2 bridges could trigger CGT events.
The lack of clarity has raised criticism, with some pointing out that the ATO is making rules without legislative guidance. The Board of Taxation, commissioned by the former government to propose appropriate cryptocurrency tax rules, has faced delays, with the findings now expected to be released in February. In the absence of legislation, the ATO’s independent rule-making has led to confusion and uncertainty among crypto investors in Australia.