The Australian Taxation Office (ATO) has clarified that capital gains tax on crypto assets will now include wrapped tokens and interactions with decentralized lending protocols. This announcement poses a setback for Australian crypto holders and follows the ATO’s earlier focus on crypto capital gains as a key area for scrutiny. The move extends taxation to various crypto actions, treating the transfer of assets to non-owner addresses as a taxable event. Additionally, the wrapping and unwrapping of tokens, regardless of their market value, will now trigger capital gains tax.

ATO’s Position on Crypto Actions

The ATO‘s recent clarification underscores its commitment to taxing crypto investors on capital gains, expanding the scope to various transactions within its jurisdiction. This includes the transfer of assets and the wrapping and unwrapping of tokens, each considered a taxable event based on the market value at the time of the exchange.

Australian Taxation Office Plans To Tax Capital Gains on DeFi and Wrapped Tokens https://t.co/5WqcZZ7oz8

— Pedro 🫡 🇦🇺 (@PedroArenas01) November 15, 2023

Chloe White, Managing Director of Genesis Block and advisor to Blockchain Australia, raises concerns about the ATO’s move, claiming a breach of the technology neutrality principle. White emphasizes the impact on the financial future of young Australians and calls for government intervention to address what she sees as errors made by the ATO.

Impact on DeFi Users and Criticisms from the Crypto Community

The ATO’s decision could significantly affect Australians engaging in decentralized finance (DeFi), triggering tax events even with non-binding guidance. Critics argue that such measures, impacting cross-chain interoperability tools like token wrapping, are unexpected and counterintuitive for users navigating the crypto space.

Amidst the criticism, Australia’s Board of Taxation is set to review the tax treatment of digital assets, including comments on capital gains tax for crypto. The review, to be submitted to the government by February 29, 2024, will provide insights into potential adjustments to the current tax framework.

CoinSpot Exchange Exploit Adds to Challenges

The taxation announcement coincides with challenges in the Australian crypto space, including the recent exploit of the CoinSpot exchange, resulting in a loss of $2.4 million worth of crypto. The hack, attributed to a possible compromise of a private key in a hot wallet, adds to the concerns faced by crypto holders in the region.