Harrison Dell, a tax lawyer and director of Cadena Legal, says some notable recent airdrops likely to be treated by the ATO as initial allocations include Ethereum Name Service ($ENS), LooksRare ($LOOKS) and ApeCoin ($APE).
Many investors who have filed their tax returns and received airdrops of new crypto during the 2021-22 financial year have likely declared them in their returns as income.
Shane Brunette, co-founder and chief executive officer of CryptoTaxCalculator, says investors who have already submitted their tax returns for the financial year should think about lodging an amendment, as they may be able to reduce their tax liability or receive a refund.
The ATO’s guidance also says airdrops of new crypto, provided for free, will have a “cost base” of zero against which the calculation of capital gains or losses is referenced if the crypto is subsequently sold or exchanged for another virtual currency.
Where the tokens are not free, the cost base will be the amount that was paid to acquire them, the ATO says.
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Realised capital gains are subject to tax the financial year the gains are made.
If you hold your coin or token – or any other investment – for 12 months or more, you will likely be entitled to a capital gains tax discount.
If you make a capital loss, it can be used to reduce capital gains made in the same financial year or can be carried forward to future years.
Keeping track of crypto can be complex. There are providers of crypto tax software, where investors can download a spreadsheet of transactions from their exchange or crypto wallet.
The file of crypto transactions is then uploaded to the crypto tax software, which generates a year-end tax report that can be entered into tax returns, or provided to your tax agent.
Individuals have until October 31 to lodge their 2021-22 tax returns. Those with tax agents, and those who register with a tax agent by October 31, providing they have no outstanding issues with the ATO, have until the middle of May next year to lodge returns.
If in doubt about tax, seek the advice of a qualified tax professional.
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
