Source
r/cardano•
FirstCartographer448

Australian Tax Office views Staking Rewards as ordinary income?

Staking

apparently interactions on the ATO community web pages in Australia views staking rewards as ordinary income. This means that it is taxable income at the point in time rewards are given in ADA.

This makes no sense as there had not been a SELL transaction and no conversion to FIAT currency had taken place.

The effect of this is stakers will need to sell some of ADA rewards at year end or periodically to meet their tax obligations.

I dont see this in other jurisdictions..

Anyone else have any information on this? appreciate some comments..

Posted Aug 8, 2021, 3:31 AM UTC

3567
PM_me_ur_bingo_nos•

ATO treats staking rewards like dividends.

15
FirstCartographer448OP•

Thanks for all the replies ...to summarize and I did more searches, my comments, please opine...

  1. most of you accept to pay taxes on rewards as ordinary income, assuming that most made profits, come tax year end BUT...
  2. koinly, and others, abound in ads, I dont see the point of uploading all my trades to yet another centralized private company for free! If I do that, why am I in Cardano, a decentralized platform for common good! (I use my own spreadsheets with free feeds for CGT calc)
  3. Effect on ADA price. having to pay taxes on ADA rewards means selling some ADA for most. This does not hurt when prices are going up. But will hurt when prices stabilizes or go south.
  4. UnStaking effect. The draining of cash flows also means that there is an impact on ADA price as some tokens will be liquidated to meet the cashflows for taxes usually at year end in Australia. This will sell down 3% to 4% of ADA in the market. More liquidity at this point (more ADA sold) means pressure to push ADA prices down.
  5. Taxes as ordinary income also means that you are tax at the top marginal rate. for most 30% to 50% unless you are a company and or trust, then it will be capped at 30%.
  6. Tax treatment in other countries , UK https://cryptotaxcalculator.io/guides/crypto-tax-uk-hmrc/ , Germany https://www.reddit.com/r/Crypto_com/comments/mg9r4a/stake_in_germany_taxes/ . In short, you have to pay taxes at marginal rates for the privilege to hold your ADA rewards and NOT SELL!!! Ridiculous!
  7. Treating Staking Rewards as Property. this great discussion, SIMPLIFIES EVERYTHING and is fairer. https://blockchainassoc.medium.com/why-staking-rewards-need-better-tax-treatment-81ea4d542ebd and paper Cryptocurrency Economics and the Taxation of Block Rewards
    165 Tax Notes 749 (Part 1; Nov. 4, 2019), 165 Tax Notes 953 (Part 2; Nov. 11, 2019)
    44 Pages Posted: 4 Nov 2019 Last revised: 13 Nov 2019
    Abraham Sutherland
    University of Virginia School of Law Date Written: November 4, 2019
1
kogmaa•

I’d say that’s pretty normal and how it should be. Most countries have taxes for gains from investment.

Often people complain about the rich just sitting on their money and getting richer… this tax is just to curb this effect.

See it this way: now you are in the position to sit back and watch your money increase without yourself having to move finger. Granting the country you are living in a portion of your profits (so they can maintain infrastructure, pay for schools etc) is not a bad investment if it ensures that you can enjoy your profit in peace.

7
wadevaman•

And how do you imagine one will pay the tax from the staking gains? Per epoch, per year? And how much? The price at the point of receiving the rewards? Some other arbitrary time frame? Are you gonna write that price down at midnight every 5 days? How many decimals? Or will you play it safe and just round it up?

And you'll pay tax once? No, you'll pay tax again, when you sell your rewards!

Dividends are fundamentally different than staking rewards, but they seem to have simply copy&pasted that model over to crypto. It's just not that simple.

Wouldn't be easier for the delegator to simply not report their staking activity? Not out of any maliciousness, but out of the practical impossibility to comply accordingly.

These people have no idea what they are doing, no idea about the intricacies of the field they are trying to regulate. It's the equivalent to turning up in surgery, wearing a doctor's coat whilst wielding a shovel!

6
ledditfags•

It also allows you to establish a cost basis for ADA in the future if you were to sell and avoid the tax man knocking on your door.

3
WeekendSuperb57•

and another thougt... if it is a taxable event i would love a smart contract that pays out staking rewards once a year or aat any given day i want. that would make it much easier to cash out and pay taxes correctly and maximise gains.

​

edit: or even to take out a loan against it as collateral. that would be totally tax free.

6
GarethGore•

Christ it really sums up my life that this is my most wanted thing. I don't mind it with cardano as it's once every five days but for some other projects this would be a godsend

2
Onlogn2•

Yes, that is accurate. I don’t cash out though but I still pay the additional income tax (from cash in hand). The base price of the asset stays though so capital gains/losses are claimed on the base that you paid your income tax.

On a side note, I agree… it’s stupid but it is what it is.

4
Alert-Eye-5376•

I'm assuming they look at the yeild the same as interest payments. It's the same here in the us every year the bank sends you a interest earning statement you need for taxes. Like you can earn any money on a traditional 2% interest earning account. Being taxed on 10 dollars of earnings makes a difference in the government coffers because they buy 600 dollar toilet seats.

3
megas_g•

Yes this is correct. Staking rewards are treated as income and are taxed at the aud value at the time of receiving. Also if you sell those rewards at a later date to pay for the tax or whatever reason , there is a CGT event for the profit/loss of the price difference at time of receiving the reward to time selling the reward.

3
Green_Griffin•

Yep, same treatment in NZ too.

Does mean you need to be right on to of all your transactions/records, but that should be the case anyway.

2
Aromatic-Attitude-34•

What's a CGT?

1
megas_g•

Capital Gains Tax

2
wikipedia_answer_bot•

This word/phrase(cgt) has a few different meanings. You can see all of them by clicking the link below.

More details here: https://en.wikipedia.org/wiki/CGT

This comment was left automatically (by a bot). If I don't get this right, don't get mad at me, I'm still learning!

^(opt out) ^(report/suggest)

0
Podsly•

It makes sense, because the ADA always exists but it has transferred ownership. You need to calculate the tax based on when an transfer of ownership event occurs. This is true for of any goods, be it crypto, shares, or real world items.

You can either sell your ADA to pay for the tax or use other income sources.

It's not much different to my plenti.com.au P2P loans... I've been getting 6-9% for 3 years. Each year I've had to pay approx 4k in tax from that investment and I've used my normal income from my occupation to pay it. I'll do the same for my crypto income.

If the price of crypto goes up too much, I may need to start selling some of those rewards to pay the tax.

It is what it is.

3†
SilverbackViking•

I would be challenging that with the ATO, unless they have declared ADA as legal tender neither a gain nor income have been realised. Pretty simple, ATO will lose that in court IMO....

3
FirstCartographer448OP•

do you have case references? i agree with the reasoning on this...i can try to rally the aussie SPOs by providing the same case references... and get the lot to submit an appeal to the ATO for determination.

2
SilverbackViking•

I will be the case reference once they come for me, doesn't exist yet because people bend over to easily. I'm happy to pay the taxes I owe, I just expect clear and consistent rules, if they're not I'm happy to invest in legal services to assist.

1
FirstCartographer448OP•

i. will search and take a look...i am not a tax accountant.. but i will read.. and come back to the thread..

2
SexualConsentKoala•

US is the same way. Staking rewards are treated as an ordinary income (closer to dividend income) and filed as a miscellaneous income. That's a completely separate issue from your CGT.

The way staking rewards is taxed really does make the most sense. Its basically the same as receiving a paycheck. They dont care what you plan on doing with it but you still have to pay when you get it.

The stupid part is how for every one trade you make they've triple-dipped their grubby mitts into your pockets.

Edit: I dont know if pooltool.io or adapools.org converts into AUD but they do break your rewards down by epoch with your cost basis and tax liability for this purpose.

2
stream78•

use https://pooltool.io to export your staking rewards .. can be imported into koinly as well if required. Should make it easier for your tax submissions to the ATO.

2
Still_Lobster_8428•

Its normal and better then other options.... I'd much rather have it seen as income and fall under income tax rather then class it as capital gains!

It will also be calculated on the ADA price on the day when you receive the profits into your account which is a pretty fair way to do it.

The simple fact is you have made a PROFIT.... be happy with that even if you have to pay a little tax on it.

2
jacko_the_gog•

Pay tax when you get it (income tax) and pay tax when you sell it (capital gains)… seems a bit painful to many.

2
Still_Lobster_8428•

Your only paying tax on the PROFIT though when you sell it..... not on the whole amount!

3
docminex•

You're actually paying more tax in total that way though and you're paying some of the tax earlier (which is great for the government, but bad for you personally). As soon as you hold the staking rewards for more than a year the 50% capital gains tax discount kicks in and so you would have benefited if you pay CGT on the full value, rather than the initial value as income.

1
Still_Lobster_8428•

Its my understanding that the first tax is classed as income tax, not CGT. The tax event occurred when you were paid the staking rewards. You pay that tax at end of financial year so get to use the tax amount to invest in the mean time.

The CGT only happens if you sell. So if your holding, its not an issue until you sell. Plus its only on the profit/loss difference since you purchased/gained through rewards.

So if you get 1 ADA as staking reward and ADA cost $1 and your income tax is 20%, you owe $0.20.

Then say you want to sell that 1 ADA 6mths later for $1.50, you only hit with CGT on the $0.50 that its gained in value.

This is very rough calcs, not factoring in the different tax brackets and so on.

2
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1
[deleted]•

[removed]

1
phyxius90•

You don't need to sell to fiat for it to be a capital gain event. You have received extra income via the coins rewarded. At the moment they are rewarded you pay tax on them. Just the same as dividends. Really good resource for you linked below.

https://koinly.io/guides/crypto-tax-australia/

1
WeekendSuperb57•

i would love someone to go to court over that matter. because staking rewards are not exactly interest. the wording would suggest you could also call it an airdrop. and there are countries where a thing such as an airdrop are tax free after one year.

1
Imastonksnoob•

You should see what the us is trying to push through right now.

I don’t remember doing kyc for my yoroi wallet, correct me if I am wrong. So how would they know? You just pay tax if u off ramp it.

1
bierli•

I don‘t see a problem with this!

1
aTalkingDonkey•

In earn about 10k a year in staking. If ada hits $10 in making 100k a year in staking.

That is income and i need to pay tax on that.

However you don't need to pay cgt on the sale event. Cause it was already income tax

1
crotley32•

That last bit is incorrect you will pay CGT

1
aTalkingDonkey•

you dont pay capital gains on income. or rather, in australia CGT is added to your income bracket but is given a 50% discount if you have held the asset for a year, and so you dont get the discount if it is staking.

1
TrianglesTink•

I know this is a few days old now but just letting you know that the income from ADA creates a new cost basis with every transaction and you will need to pay taxes when you sell that same ADA you initially earned as income. You will however get that discount after a year of holding.

Taxable income plus Capital Gains Tax. Fuck the ATO.

1
cryptotaxcalculator•

Hey there, Aymon from cryptotaxcalculator.io

You can check out our whole Australia Crypto Tax Guide here, the following is an excerpt from our Staking section.

Staking is a process whereby individuals can ‘lock-up’ their cryptocurrency to support the operation and security of the blockchain network. When decisions are made regarding the blockchain, the group in consensus (i.e. The group in majority decision) are rewarded. The process is comparable to earning interest on a bank deposit.
Often individuals that are participating in a staking pool will indicate that they always wish to agree with the majority (i.e. They always wish to be in consensus). They will receive a small number of coins as a reward whenever the pool reaches consensus.
An airdrop is a term used to describe when cryptocurrency projects deliver a small quantity of their coin to different individuals by depositing it into their cryptocurrency wallet. This is often employed as a marketing technique to raise awareness about relatively new coins.
Any income earnt from Staking or Airdrops will not constitute a Capital Gains event. Rather, additional tokens received from these processes are considered by the ATO to be income. They are taxed according to your income bracket.
Staking Example:

You hold 100,000 Bitcoin in a pool for the purpose of staking. Your pool reaches consensus and you receive an additional 10,000 Bitcoin as a reward.
The additional 10,000 Bitcoin are worth $50 at the time you received them.
The $50 worth of coins you received is considered income for tax purposes.
In the future, if you exchange the coins, the CGT you pay will be calculated with the cost base being $50.

Let me know if you have any questions :)

1
FirstCartographer448OP•

Thanks for all the replies ...to summarize and I did more searches, my comments, please opine...

  1. most of you accept to pay taxes on rewards as ordinary income, assuming that most made profits, come tax year end BUT...
  2. koinly, and others, abound in ads, I dont see the point of uploading all my trades to yet another centralized private company for free! If I do that, why am I in Cardano, a decentralized platform for common good! (I use my own spreadsheets with free feeds for CGT calc)
  3. Effect on ADA price. having to pay taxes on ADA rewards means selling some ADA for most. This does not hurt when prices are going up. But will hurt when prices stabilizes or go south.
  4. UnStaking effect. The draining of cash flows also means that there is an impact on ADA price as some tokens will be liquidated to meet the cashflows for taxes usually at year end in Australia. This will sell down 3% to 4% of ADA in the market. More liquidity at this point (more ADA sold) means pressure to push ADA prices down.
  5. Taxes as ordinary income also means that you are tax at the top marginal rate. for most 30% to 50% unless you are a company and or trust, then it will be capped at 30%.
  6. Tax treatment in other countries , UK https://cryptotaxcalculator.io/guides/crypto-tax-uk-hmrc/ , Germany https://www.reddit.com/r/Crypto_com/comments/mg9r4a/stake_in_germany_taxes/ . In short, you have to pay taxes at marginal rates for the privilege to hold your ADA rewards and NOT SELL!!! Ridiculous!
  7. Treating Staking Rewards as Property. this great discussion, SIMPLIFIES EVERYTHING and is fairer. https://blockchainassoc.medium.com/why-staking-rewards-need-better-tax-treatment-81ea4d542ebd and paper Cryptocurrency Economics and the Taxation of Block Rewards
    165 Tax Notes 749 (Part 1; Nov. 4, 2019), 165 Tax Notes 953 (Part 2; Nov. 11, 2019)
    44 Pages Posted: 4 Nov 2019 Last revised: 13 Nov 2019
    Abraham Sutherland
    University of Virginia School of Law Date Written: November 4, 2019
1