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 your staked reward cryptocurrencies’ cost base 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).
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.
