ATO determining whether DeFi investments trigger capital gains tax

The Australian Tax Office (ATO) looks to the world of decentralized finance (DeFi).

In a statement to nestegg, the ATO confirmed that it is taking a closer look at crypto-based financial platforms like Celsius and how they fit into the current fiscal framework.

“The ATO is examining various decentralized financial platforms and working to develop public views of the ATO to help investors understand the tax implications of their activities,” said a spokesperson for the tax office.

Ultimately, the ATO told nestegg that the tax implications of these crypto platforms and DeFi protocols would be determined by their structure.

“For example, the terms and conditions that govern taxpayer interactions with the Celsius platform state that Celsius owns and holds the assets that are transferred to their platform. This means that there would be a divestiture of the asset when the asset is transferred, ”said the ATO.

Whether or not a ‘disposal’ of an asset has taken place is important as it determines whether or not a capital gains tax event occurs under the current ATO tax rules regarding crypto. -coins.

Launched in 2017, Celsius is one of the many CeFi and DeFi platforms that have sprung up in recent years. Built around the native CEL token, it aims to give a crypto twist to traditional banking products like savings accounts and asset-backed loans.

Built on the same blockchain technologies powering the Bitcoin and Ethereum networks, DeFi has become one of the most talked about corners of the crypto conversation with an estimated market cap of $ 300 billion.

“While developers have been building them for years behind the scenes, adoption of DeFi protocols like Uniswap and Aave has exploded over the past 18 months,” Cointree CEO Shane Stevenson told nestegg.

Mr Stevenson said that while much of the crypto conversation centers around stablecoins and Layer 1 blockchains like Ethereum, Cardano and Solana, DeFi is helping achieve the vision and goal of origin of cryptography.

“These blockchains were built for a reason, and DeFi is helping make their vision a reality,” he said.

Speaking to nestegg, CryptoTax CEO Shane Brunette revealed that his company recently discussed with the ATO the tax issues presented by liquidity pools and automated market makers in the decentralized finance world.

“It’s a lot of questions around some of the more complex transactions out there, and when is there a provision versus a deposit in a smart contract,” he explained.

When investors deposit crypto into a cash pool, they usually receive a token or certificate in return.

While Mr Brunette said most investors see this as some kind of deposit slip, he suggested the ATO might feel differently.

“The way the ATO has discussed this so far in our conversations has been that maybe this is a divestiture, and you actually have the asset with the right to buy it back. at a later date with interest, “he said. noted.

Mr. Brunette added that this interpretation “would be surprising to most market participants at this time”.

In its statement to nestegg, the ATO acknowledged that other DeFi platforms might not work the same as Celsius.

“No CGT event will occur if it can be demonstrated that the same asset is owned permanently by a taxpayer throughout the process of interacting with the platforms,” said the ATO.

ATO determining whether DeFi investments trigger capital gains tax

Last updated: 03 November 2021

Posted: 03 November 2021