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Edited version of private advice
Authorisation Number: 1052296904875
Date of advice: 29 August 2024
Ruling
Subject: Staking cryptocurrency
Question
Does a CGT event happen at the time of staking or unstaking cryptocurrency under section 102-20 of the Income Tax Assessment Act 1997.
Answer
No.
This ruling applies for the following period:
30 June 20XX
30 June 20XX
The scheme commenced on:
1 July 20XX
Relevant facts and circumstances
You are an Australian resident for tax purposes.
You are not carrying on a business.
You hold X cryptocurrency tokens as an investment on a cryptocurrency exchange.
You do not hold any cryptocurrency for personal use.
The cryptocurrency exchange offers you a service where they perform staking on your behalf.
While the X tokens are staked, you cannot trade or transact with it.
You can stake and unstake your X tokens at any time, subject to unstaking lockup periods.
The cryptocurrency exchange provides the option to 'wrap' your X tokens but you do not intend to 'wrap' any of your staked X tokens.
You accept that the rewards received from staking your X tokens are ordinary income.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 102-20
Income Tax Assessment Act 1997 section 104-10
Reasons for decision
Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) states that a capital gain or capital loss is made only if a capital gains tax (CGT) event happens.
Section 108-5 of the ITAA 1997 provides that a CGT asset is any kind of property, or a legal or equitable right that is not property. CGT assets include part of or an interest in property or a legal or equitable right that is not property.
Taxation Determination TD 2014/26 Income tax: is bitcoin a 'CGT asset' for the purposes of subsection 108-5(1) of the Income Tax Assessment Act 1997? explains that Bitcoin, and by extension, cryptocurrency in general is a CGT asset. The tax treatment of bitcoin can be applied to other crypto or digital currencies that have the similar characteristics as bitcoin.
You can control different types of crypto asset in the same digital or hardware wallet. However, for tax purposes you need to treat each crypto asset you hold as a separate asset.
The disposal of cryptocurrency that is not part of a business or commercial transaction will give rise to CGT event A1 under subsection 104-10 of the ITAA 1997.
When you stake X tokens, a stake account is created and the X tokens are locked up. When you unstake your X tokens the stake account is deactivated and then you withdraw your X tokens from the stake account. You do not lose ownership of the X tokens but are precluded from trading with them. In return you can receive rewards (additional tokens) from locking your X tokens.
The staking and unstaking of your X tokens does not give rise to a CGT event at that time. When you dispose of the X tokens (including the reward tokens), CGT event A1 will apply.