In the world of cryptocurrency, users often come together for community-driven initiatives. In the last year, there has been a trend of users willingly sacrificing tokens to support projects with a common vision. Often the sacrificed symbols are used to enable the entity controlling the protocol to make a political statement. But does this act of camaraderie trigger a parting with your crypto assets, inadvertently triggering a tax liability?
In short – yes.
What does the Australian Taxation Office (ATO) say?
The ATO has not yet issued formal guidance on victims, but has addressed the issue in a private binding ruling (PBR). PBRs are only binding on the taxpayer who applied for the PBR and whose special circumstances have been assessed by the Commissioner. Nevertheless, they provide taxpayers with more general guidance on how the Commissioner will apply the Act.
As regards the signs of sacrifice, the Commissioner has considered that it does in fact trigger a tax liability – more precisely capital gains tax (CGT), and in particular CGT event A1.
What does this mean to you?
The amount of tax payable when you dispose of a CGT asset depends on the cost basis of the asset and the income received. “Cost basis” is the amount involved in acquiring and holding the asset, but there are strict rules about what is included and excluded.
But your income is zero? That may be true (recognizing that you may have some sort of right to a token in the future). However, you will actually receive the market value of the asset, which is determined on the date of disposal. For many taxpayers with tokens that have increased in value, this can represent a capital gain.
As a CGT asset, there may be certain tax reliefs available to reduce your tax bill. For example, when the asset is held for more than 12 months and is a capital asset. Crypto traders usually hold their tokens in income account, which means this concession will not apply. The rules are complex and it is recommended to seek specialist tax advice.
Can I claim this as a political donation?
Contributions to political parties or politicians are tax deductible where they are given in your personal capacity to certain recipients. Although the Controllers of Protocols may use the sacrificed symbols to make a political statement, they do not qualify as a recipient of political donations for tax purposes. Therefore, your donation is not deductible.
Do not forget!
Remember that thorough record keeping is important. Maintain comprehensive records of acquisition costs, market values at the time of offering and any associated fees or expenses. Your attention to detail will not only minimize tax compliance errors, but help you if you are audited by the ATO.
With the instability of some exchanges, it is also recommended that you regularly download copies of your data.
As the fiscal year draws to a close, now is the time to review all your dispositions—yes, even the sincere sacrifices made with good intentions.
