Introduction
Cryptocurrencies have opened up new avenues for investment and income generation, and one such avenue gaining popularity in Australia is staking crypto. As more Australians explore the potential of crypto staking to earn passive income, it’s crucial to grasp the tax implications associated with this exciting endeavour.
The Australian Taxation Office (ATO) has clarified that rewards obtained through staking, in terms of their Australian dollar value, will be subject to ordinary income tax when received.
This article aims to comprehensively understand the staking process and how the ATO guidelines for staking crypto work. Let’s navigate the world of crypto tax in Australia and understand crypto staking step by step.
Understanding Crypto Staking
Crypto staking is a fundamental concept in cryptocurrencies, allowing users to earn rewards while holding onto specific digital assets. At its core, staking involves locking up a portion of your cryptocurrency holdings to participate in the validation and security of blockchain transactions.
This process is made possible through a consensus mechanism known as Proof of Stake (PoS), eliminating the need for traditional intermediaries like banks or payment processors.
How Is Crypto Staking Taxed In Australia?
Australian crypto enthusiasts have increasingly started staking to earn rewards from their digital assets. However, it’s essential to understand the tax on crypto in Australia and the implications of these staking rewards.
When you engage in crypto staking and receive rewards, the ATO considers these rewards as ordinary income. You must report them as part of your taxable income.
In other words, the rewards you earn from staking are treated much like any other income you receive, such as your salary or wages.
If you decide to sell or dispose of the staking rewards you’ve earned, you may also be subject to Capital Gains Tax (CGT). This tax is applied to the gains made from the sale of your assets, including cryptocurrencies.
To calculate your gains or losses, use the fair market value you initially calculated when you received your crypto as your cost basis.
It’s crucial to keep accurate records of your staking activities and consult with a tax professional if you need more clarification about your tax obligations.
How To Calculate Tax On Income Crypto Staking In Australia?
Crypto staking income involves two main components: Capital Gains Tax and Income Tax.
Income Tax
Staking rewards are regarded as income and are taxed as ordinary income per ATO guidelines. When received, the fair market value of the rewards will serve as the cost basis of the tokens. You must report the total FMV of the token so that it can be added to your regular income and taxed under the ordinary tax rate.
Capital Gains Tax
Now, if you decide to sell off the token subsequently and make a profit from the respective transaction, you will be liable to pay Capital Gain Tax. You must provide the cost base of your staked reward cryptocurrencies to calculate profit. This includes the initial purchase price and any associated costs like transaction fees. You then subtract it from the Fair Market Value of the token at the time of selling.
Capital Gain= Disposal Price (FMV) – Cost basis
Real Life Scenario
Amy has 1000 Y coins. She decides to put these coins into a network that gives rewards for doing so. Because of this, Amy gets 200 Y coins as a reward.
These 200 coins will be treated like regular income and added to Amy’s yearly income.
If each coin is worth AUD 300, then AUD (200 * 300) = AUD 60000 will be added to her income.
Now, let’s calculate the tax Amy owes:
- For the first AUD 18,200, there’s no tax.
- For AUD 18,201 and AUD 45,000, there’s a 19% tax, which amounts to AUD 5,092.
- For the remaining AUD 15,000, there’s a 32.5% tax, which amounts to AUD 4,875.
So, the total tax Amy owes is AUD (5,092 + 4,875) = AUD 9,967.
Please note that if Amy decides to sell the rewards she earned later, she must also pay Capital Gains Tax (CGT).
How Do You Report Staking Rewards on Your Tax Return?
Reporting staking rewards on your tax return in Australia involves several important steps. Since the Australian Taxation Office (ATO) treats staking rewards as ordinary income, you must declare these earnings in your annual tax return just like you would any other source of income.
Steps to Report Staking Earnings
- Record Your Staking Rewards: Keep accurate records of your staking income, including the date, value in Australian dollars, and the type of cryptocurrency received. Staking rewards are taxed at the fair market value on the day they are received.
- Include in Your Income Tax: When filing your tax return, report your staking rewards as income. You must declare these earnings in the same section where you report other types of ordinary income, such as salary or business income.
- Use Tools Like KoinX for Easy Reporting: KoinX can help you track your staking rewards and calculate the taxable amount accurately. This software simplifies the reporting process, ensuring you meet ATO requirements without missing any details.
Penalties for Incorrect Reporting
Failing to report staking rewards correctly can lead to serious penalties. The ATO takes tax fraud seriously, and penalties can range from fines to imprisonment, depending on the severity of the offence. For each incorrect or omitted report, you may face penalties calculated in penalty units, which can be quite costly. Additionally, tax evasion carries a maximum penalty of up to 200 penalty units or two years in prison.
To avoid penalties, always report your staking rewards accurately and on time. Consider using software tools to help you stay compliant and streamline the process.
Conclusion
Crypto staking is a popular way to earn passive income from cryptocurrencies. However, it’s essential to understand the staking tax implications of staking rewards in Australia.
When you receive staking rewards, they are considered ordinary income and must be reported on your tax return. You may also be subject to capital gains tax if you sell or dispose of the staking rewards.
Calculation of such taxes manually can be very tedious. But worry not! KoinX has simplified it for you. It is a crypto tax computing software that offers portfolio tracking for a more straightforward way to handle crypto tax compliance. Get started with KoinX today to simplify your crypto tax journey.
Frequently Asked Questions
Is Crypto Staking Legal In Australia?
Yes, crypto staking is legal in Australia. The Australian government and the Australian Taxation Office (ATO) recognise cryptocurrencies as assets, and staking is considered a legitimate activity. However, it’s essential to comply with all relevant tax laws, including reporting staking rewards as income. Make sure to stay updated on any changes in regulations to ensure full compliance
Can You Save Taxes On Crypto Staking?
Yes, there are ways to potentially save on taxes related to crypto staking in Australia. For instance, holding your staked assets for over 12 months may qualify you for a capital gains tax discount. Additionally, using tax-efficient strategies like offsetting losses against gains can help reduce your overall tax burden. You can also consult a tax professional to optimise your approach
Can ATO Track My Crypto Staking Rewards?
Yes, the ATO can track your crypto-staking rewards. They have measures in place to monitor cryptocurrency transactions, including staking rewards, through exchanges and blockchain data. It is essential to accurately report all crypto income, including staking, on your tax return to avoid penalties. Therefore, keeping detailed records of all transactions is highly recommended.
Are Staking Fees Tax Deductible?
Yes, staking fees can be tax deductible in some cases. If you incur fees while staking as part of an investment activity, these costs may be considered deductible expenses. However, the specific rules around deductions can be complex, so it’s wise to consult a tax advisor familiar with crypto taxation to ensure you claim correctly and stay compliant.
