Quick answer
Governance tokens earned from DeFi protocols are taxable income the moment they are distributed to your wallet.
DeFi & Web3
Australia
Canada
United Kingdom
United States
Governance Token
Tokens that grant holders voting rights over DeFi protocol decisions; receiving them as rewards is typically taxable income.
AustraliaCanadaUnited KingdomUnited StatesUnderstanding Governance Token on crypto
Governance tokens are cryptocurrencies that give holders voting power over the direction of a decentralised protocol — including parameter changes, treasury allocation, and upgrades. Well-known examples include UNI (Uniswap), COMP (Compound), and AAVE. These tokens are often distributed as rewards to users who provide liquidity or borrow from the protocol. From a tax perspective, governance tokens received as rewards are ordinary income at fair market value at the time of receipt. Their subsequent sale triggers a CGT event. Tokens received for simply holding another asset (as with some governance distributions) are treated similarly to airdrops.
Governance tokens are cryptocurrencies that give holders voting power over the direction of a decentralised protocol — including parameter changes, treasury allocation, and upgrades. Well-known examples include UNI (Uniswap), COMP (Compound), and AAVE. These tokens are often distributed as rewards to users who provide liquidity or borrow from the protocol. From a tax perspective, governance tokens received as rewards are ordinary income at fair market value at the time of receipt. Their subsequent sale triggers a CGT event. Tokens received for simply holding another asset (as with some governance distributions) are treated similarly to airdrops.
What this means for your crypto activity
Income on receipt
Governance tokens earned as DeFi rewards are income at FMV when received.
Tax due even if holding
Even if you plan to hold the token long-term for voting, the income tax is due on receipt.
CGT on sale
Selling governance tokens at a gain above their income cost basis triggers CGT.
Staking creates more income
Staking governance tokens for additional rewards creates further income events.
Founder allocations
Large governance token allocations to founders or team members may be treated as employment income rather than investment income.
- Governance tokens earned as DeFi rewards are income at FMV when received.
- Even if you plan to hold the token long-term for voting, the income tax is due on receipt.
- Selling governance tokens at a gain above their income cost basis triggers CGT.
- Staking governance tokens for additional rewards creates further income events.
- Large governance token allocations to founders or team members may be treated as employment income rather than investment income.
Seeing it in action
Example scenario
Ben provides liquidity to Uniswap and earns 100 UNI governance tokens over 3 months. When distributed, UNI is trading at $6.50. Ben has $650 in ordinary income. His cost basis in the 100 UNI is $650. When he sells the UNI at $10 ($1,000 proceeds), he has a $350 capital gain.
How this works across jurisdictions
- Australia
ATO treats governance token receipts as assessable income at FMV; CGT applies on disposal.
- Canada
Governance tokens received as rewards likely property income or business income; capital gain at 50% inclusion on disposal.
- United Kingdom
HMRC treats governance token rewards as miscellaneous income at FMV on receipt; CGT on disposal.
- United States
Governance tokens received as rewards are ordinary income at FMV on receipt; subsequent sale is a capital gain.
Take Control of Your Crypto Finances
From crypto taxes to accounting, KoinX helps you manage, track, and stay compliant and to end.
![[object Object]](/_next/static/media/ISO_27001-2022_certification.ae776691.svg)
![[object Object]](/_next/static/media/GDPR_Compliance.a2dc5933.svg)
![[object Object]](/_next/static/media/SOC_2_Type_II_certification.dd69381e.svg)
