With Decentralised Finance (DeFi) gaining momentum across Australia, understanding how the ATO taxes your decentralised finance activities has become more important than ever. In 2023, the ATO released updated guidance to clarify how DeFi activities are taxed, either under Capital Gains Tax (CGT) or Income Tax rules.Whether you’re swapping tokens, staking assets, or earning passive rewards, each transaction could trigger a tax liability depending on how it’s structured and recorded.
However, not all DeFi transactions are treated the same. Factors such as the type of protocol, how you receive rewards, or whether your crypto accrues value can all influence your tax treatment. This guide breaks down the most common DeFi transaction types and explains the taxes that may apply. If you’re involved in DeFi, this article will help you understand your obligations and stay compliant with Australian tax laws in 2025.
Are DeFi Transactions Taxable In Australia?
Yes! DeFi Transactions are taxable in Australia. The Australian Taxation Office (ATO) treats DeFi transactions based on how the crypto asset behaves in each scenario. If a transaction involves disposing of a crypto asset, like trading or converting, it usually triggers a Capital Gains Tax event. If you’re receiving new tokens or rewards, those are typically treated as income and taxed accordingly.
However, the exact treatment depends on the protocol you use and how the rewards are delivered. In some cases, the ATO may classify the transaction as income if the token is distributed directly. In others, if the asset gains value over time and is later sold, it may fall under CGT rules. Understanding this distinction is key to reporting accurately.
Read More: Ultimate Guide on Crypto Taxes in Australia
Income Tax on DeFi Transactions
Income Tax applies to DeFi transactions where you receive new tokens, rewards, or earnings as part of your activity on a protocol. The ATO classifies these as assessable income, meaning you must report the fair market value of the tokens in Australian dollars (AUD) on the day you receive them, even if you haven’t sold them yet.
Here are common examples where Income Tax applies:
- Liquidity mining and staking rewards: If you earn new tokens by staking or liquidity mining, their value is taxable as income upon receipt.
- Play-to-earn (P2E) games: Tokens earned through gaming, such as SLP or AXS, are considered income.
- DeFi lending rewards: If the protocol pays interest in the form of new tokens, those tokens are taxed as income.
- Airdrops and referral bonuses: These are usually treated as income if received in exchange for effort or promotional activity.
You’ll need to keep records of each transaction, including the date received and AUD value, to report this income in your annual tax return.
Read More: Investors Vs Traders: ATO Classification
Capital Gains Tax on DeFi Transactions
Capital Gains Tax applies when you dispose of a crypto asset that the ATO considers a capital asset. In the DeFi space, this includes swapping tokens, removing liquidity, redeeming wrapped tokens, and selling NFTs. The taxable amount is the gain made between the asset’s cost base and its value at the time of disposal.
Common CGT scenarios in DeFi include:
- Swapping tokens on a DEX: Each swap is a disposal and must be reported.
- Redeeming LP tokens: Removing liquidity and receiving tokens back is treated as a CGT event.
- Unstaking assets where rewards accrue: If your staking mechanism increases token value (not through new token payouts), the gain is realised on unstaking.
- Disposing of NFTs or tokens earned in games: Selling NFTs or game-earned tokens often triggers a CGT event.
If the asset was held for more than 12 months, you may qualify for a 50% CGT discount, reducing your taxable gain.
Read More: Tax on Gifts and Donations in Australia
Taxes on DeFi Transactions in Australia in 2025
The ATO does not treat all DeFi transactions the same. Below is a table that summarises the current ATO treatment of all common and advanced DeFi transactions for Australian users in 2025:
DeFi Transaction | Tax Type |
Trading on DEXs | Capital Gains Tax |
Adding/Removing Liquidity | Capital Gains Tax |
Liquidity Mining Rewards | Income Tax |
DeFi Staking (New Tokens Earned) | Income Tax |
DeFi Staking (Value Accrual) | Capital Gains Tax |
Yield Farming (New Tokens Earned) | Income Tax |
Yield Farming (Value Accrual) | Capital Gains Tax |
Lending (Token Received) | Capital Gains Tax |
Lending (Rewards as New Tokens) | Income Tax |
Borrowing With Collateral | Capital Gains Tax |
Margin Trading | Capital Gains Tax |
Derivatives Trading | Capital Gains Tax |
NFT Trading (Created NFTs) | Income Tax |
NFT Trading (Bought NFTs) | Capital Gains Tax |
Play-to-Earn Rewards | Income Tax |
Token Wrapping | Capital Gains Tax |
Transfer Fees | Capital Gains Tax (Cautious) |
Transaction Fees | Tax Deductible |
Token Rebases (Value-neutral) | Not Taxed (Potentially) |
Token Rebases (Reward-based) | Income Tax |
How Are Different DeFi Transactions Taxed By ATO?
Each DeFi activity, whether swapping tokens, lending crypto, or staking for rewards, can trigger a different tax depending on how the protocol operates. Here’s a detailed analysis of how each transaction attract taxes in Australia:
Tax on Swapping Crypto on DEXs
Swapping one cryptocurrency for another using a decentralised exchange (DEX) is considered a disposal event by the ATO. This includes trading between ERC-20 tokens, BEP-20 tokens, or even NFTs. When you swap assets, you may trigger a capital gain or loss depending on how the value of your crypto has changed since you acquired it. The taxable amount is calculated as the difference between the cost base (purchase price) and the market value at the time of the swap.
Tax on Adding/Removing Crypto from Liquidity Pools
When you add crypto to a liquidity pool, you often receive Liquidity Provider (LP) tokens in return, which represent your share in that pool. According to the ATO, this counts as a disposal of your original assets, even though you’re not directly selling them. The same applies when you remove liquidity and redeem your LP tokens for the underlying assets. Both actions can result in capital gains or losses based on the difference between the token’s value at entry and exit.
Tax on Earning New Tokens via Liquidity Mining
Liquidity mining involves providing crypto to a DeFi protocol and receiving new tokens as a reward. The ATO treats these rewards as ordinary income. That means you must declare the fair market value of the tokens you receive on the day they arrive in your wallet. This amount is subject to Income Tax, even if you don’t convert or sell the tokens immediately.
Tax on DeFi Staking Rewards
The ATO taxes staking differently based on how your specific DeFi staking setup works. Let’s look at both scenarios in detail:
Receiving New Tokens
If you stake your crypto and receive new tokens as a reward, like earning SUSHI from staking liquidity tokens, those rewards are taxed as income. You must declare the AUD value of the tokens at the time you receive them. This is assessable under Income Tax and applies regardless of whether you sell the tokens or not.
Staking Tokens Increase in Value
If the protocol uses an accrual model, like earning yield through token appreciation (e.g., XSUSHI tokens growing in value), then you are not taxed until you dispose of those tokens. In this case, the gain is realised when you convert or sell them, making it a Capital Gains Tax event.
Tax on Yield Farming
Yield farming typically involves providing liquidity to DeFi platforms in exchange for rewards. The ATO applies different tax treatments based on how these rewards are earned:
Receiving New Tokens
If the yield farming platform pays out rewards as new tokens, for example, native tokens or incentive tokens issued by the platform, you’ll be taxed under Income Tax. The fair market value of the tokens in AUD on the day you receive them must be reported as part of your assessable income.
Value Accrual On Tokens Over Time
If your capital is locked and you don’t receive separate rewards but instead hold LP or staked tokens that gain value over time, then tax is deferred. You’ll pay Capital Gains Tax only when you remove your capital and dispose of those tokens, at which point any increase in value becomes a taxable gain.
Tax on Lending and Borrowing On DeFi
Crypto lending through DeFi platforms is taxed based on whether you’re lending or borrowing, and how rewards or tokens are structured.
Lending Crypto
When you lend crypto, most platforms issue you a representative token (like cTokens or aTokens). This token swap is seen as a disposal by the ATO, triggering Capital Gains Tax on any increase in value from your original holding.
Additionally, if the platform issues new tokens as interest payments, the Income Tax rule kicks in. You’ll need to report the fair market value of each new token as income on the date you received it.
Borrowing Crypto
Borrowing typically requires depositing collateral. If you receive tokens in return that represent your collateral (e.g. wrapped or representative tokens), the ATO considers this a disposal, meaning Capital Gains Tax applies.
Also, if you repay your loan using crypto and incur a fee, this spend could be seen as a disposal, making it another CGT event.
Tax on Margin Trading and Derivatives
When you trade crypto using margin or derivatives (like futures or perpetual contracts), the ATO treats profits as Capital Gains. You don’t pay tax when opening a leveraged position, tax applies when you close the trade and realise a gain or loss.
Even if your position is liquidated (due to a margin call), it counts as a CGT disposal, and must be reported in your tax return.
Tax on NFT Trading in DeFi
NFTs have become a popular part of the DeFi ecosystem, and the ATO applies different tax treatments depending on how you acquired the NFT and what you do with it.
Selling NFTs You Created
If you mint or create NFTs and then sell them, the ATO generally sees this as earning income through a business or hobby. The profits from these sales are subject to Income Tax. You must report the income based on the AUD fair market value of the proceeds received at the time of sale.
Selling NFTs You Bought or Traded
If you purchase or acquire NFTs and later sell or swap them, the ATO treats this as a capital asset disposal. You’ll need to calculate Capital Gains Tax on any profit made. The gain is the difference between the cost base (what you paid for the NFT plus any associated fees) and the sale price in AUD.
Read More: NFT Taxation in Australia
Tax on Play-to-Earn Activities
Earnings from blockchain-based games can trigger different taxes based on how you interact with in-game assets. The ATO classifies these transactions under two separate tax categories.
Earning Tokens While Gaming
If you earn native tokens (like SLP or AXS) as rewards for playing games, the ATO treats them as income. You must report the fair market value in AUD of the tokens on the day you received them. These tokens are considered similar to regular earnings and are taxed at your individual income tax rate.
Selling or Trading In-Game NFTs or Tokens
If you later sell or trade your earned tokens or in-game NFTs, the transaction is considered a disposal of a capital asset. The gain or loss between the acquisition and disposal value is subject to Capital Gains Tax. Holding the asset for more than 12 months may make you eligible for the 50% CGT discount.
Tax on Wrapping and Unwrapping Tokens
Some DeFi protocols require wrapping tokens to enable compatibility across chains or dApps. The ATO treats these actions with specific tax rules based on how wrapping functions.
Wrapping Tokens
When you wrap a token (e.g., converting ETH to wETH), it involves exchanging one crypto asset for another. Even though the value may be nearly identical, the ATO views it as a disposal, triggering Capital Gains Tax on any price difference between the original token and the wrapped token at the time of wrapping.
Unwrapping Tokens
Unwrapping reverses the process, converting wrapped tokens back to their original form. The ATO also treats this as a disposal event. If the value of the token has changed since you acquired the wrapped asset, you may incur a capital gain or loss, which must be reported in your annual tax return.
Tax on Transaction and Transfer Fees
While both involve crypto costs, the ATO treats transaction and transfer fees differently when it comes to tax reporting.
Transaction Fees
Transaction fees that you incur while buying, selling, or swapping crypto are considered part of your cost base or sale proceeds. You can deduct these costs to reduce your overall capital gains. This includes gas fees on Ethereum and similar networks when the fee is directly related to a disposal event.
Transfer Fees
When you pay fees just to move crypto between your own wallets (for example, from your Metamask to hardware wallet), the ATO has not issued conclusive guidance. The conservative approach is to treat these as taxable disposals, where the fee is paid using a crypto asset, which counts as a disposal and is subject to Capital Gains Tax.
Tax on Token Rebases
Some DeFi protocols use token rebasing mechanisms to maintain price stability or deliver rewards. The ATO hasn’t issued explicit guidelines yet, but tax implications vary depending on the type of rebase.
Value-Neutral Rebases
In a value-neutral rebase, your token quantity changes but the total market value of your holdings remains unchanged. This is similar to a stock split. Since there’s no gain or loss realised, most tax professionals consider these events as non-taxable, provided no other token is disposed of or received.
Reward-Based Rebases
In reward-based rebases, additional tokens are issued as a form of yield or incentive. The ATO is likely to view these as income. You’ll need to pay Income Tax on the fair market value of the newly received tokens in AUD at the time of receipt.
How KoinX Helps You With DeFi Tax Reporting?
Struggling to keep track of dozens of DeFi trades across staking, lending, yield farming, and NFTs? Manually figuring out what’s taxable and how to report it can be overwhelming. KoinX solves this problem by simplifying DeFi tax compliance through automation, ATO-aligned classification, and clean reporting tools, all tailored for Australian investors.
Auto-Detects DeFi Transactions Across 300+ Platforms
KoinX integrates with all major wallets, protocols, and DeFi apps to fetch your transaction history in real time. It auto-detects events like liquidity pool staking, token swaps, NFT trades, and airdrops, ensuring no DeFi transaction is missed in your tax report.
Classifies Income vs. Capital Gains Based on ATO Rules
Each DeFi transaction is analysed and categorised using ATO’s latest tax treatment rules. KoinX helps you distinguish between income (like new token rewards) and capital gains (like token swaps), avoiding manual guesswork and costly misclassifications.
Converts Values to AUD
DeFi values are often locked in exotic tokens. KoinX fetches the accurate AUD fair market value of each token at the exact time of transaction using historical price APIs. This ensures your tax calculations are precise and ATO-compliant.
Generates ATO-Ready Reports With DeFi Segregation
KoinX prepares downloadable tax reports tailored to Australian requirements. Your DeFi earnings, gas fees, disposals, and staking rewards are segregated clearly, making it easier to fill out your tax return or share with an accountant.
Start preparing for tax season with confidence, use KoinX to stay ahead of DeFi tax reporting in Australia. Join KoinX today and make your crypto DeFi taxes in Australia, easier than before.
Conclusion
DeFi opens up exciting financial opportunities, but it also creates a complex web of taxable events. Whether you’re staking, yield farming, lending, or gaming for rewards, every action may trigger a tax obligation under ATO rules. Ignoring this can lead to underreporting, audits, or penalties down the line.
To stay compliant without the manual stress, use KoinX. It simplifies DeFi tax tracking, applies correct classifications, and generates ATO-ready reports, so you can focus on growing your portfolio, not worrying about tax errors. Sign-up on KoinX today, and enjoy investing in DeFi without worrying about taxes anymore.
Frequently Asked Questions
What Happens If I Don't Report DeFi Transactions on My Tax Return?
If you fail to report DeFi transactions, the ATO may identify inconsistencies through data-matching programs. This could trigger an audit or compliance action. Unreported gains or income can result in interest charges and penalties. It’s important to keep accurate records and file correctly to avoid enforcement actions and protect your crypto portfolio from unexpected tax liabilities.
Are Airdrops From DeFi Platforms Taxable in Australia?
Yes, airdrops are typically considered taxable income in Australia. If you receive free tokens through a DeFi protocol, the fair market value of those tokens in AUD on the day you receive them must be included in your assessable income. However, future disposals of these tokens may also attract capital gains tax depending on the holding period and value change.
Do I Pay Tax When Moving Crypto Between DeFi Wallets?
Generally, transferring crypto between wallets you own is not a taxable event. However, some DeFi protocols issue new tokens or smart contract interactions during transfers. If these transfers involve receiving a different token, it may be considered a disposal, triggering capital gains tax. Always check whether your transaction created a change in token ownership or type.
Can I Offset DeFi Losses Against Crypto Gains?
Yes, if your DeFi activities result in capital losses, such as from token disposals, trading losses, or failed protocols, you can offset these against any capital gains within the same financial year. If the losses exceed gains, you can carry them forward to offset future capital gains. However, income losses from DeFi cannot offset capital gains.
