The Australian Taxation Office (ATO) has issued guidance on capital gains tax (CGT) treatment of decentralized finance (DeFi) and wrapping crypto tokens for individuals, clarifying its intent to continue taxing Australians on capital gains when wrapping and unwrapping tokens.
In May 2022, the ATO outlined crypto capital gains as one of four key focus areas. Building on the initiative, the Australian taxman recently clarified a raft of taxable actions in its jurisdiction. The transfer of crypto assets to an address that the sender does not control or that already holds a balance will be regarded as a taxable CGT event, the ATO said in its statement.
“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,” the ATO added. However, the CGT event will trigger depending on whether the individual recorded a capital gain or loss. A similar approach has been considered for taxing liquidity pool users, providers and DeFi interest and rewards.
In addition, wrapping and unwrapping tokens will also be subject to triggering a CGT event. The ATO stated:
“When you wrap or unwrap a crypto asset, you exchange one crypto asset for another and a CGT event happens.”
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