Crypto traders warned of unexpected tax bills
Tax experts have warned that some cryptocurrency traders could be on the hook for tens of thousands of dollars in unexpected tax bills due to the collapse of major stablecoin Terra, despite a crypto market crash pushing many investors into the red.
Crypto prices have cratered as much as 60 per cent in the past eight months after hitting record highs in November, when the industry’s market capitalisation topped $4 trillion. The crash means investors are more likely to report a loss on their crypto trades for the past financial year.
The collapse of stablecoin Terra could see some traders exposed to unexpectedly high tax bills.Credit:Bloomberg
The Australian Taxation Office (ATO) treats crypto as property, rather than currency, meaning investors have to pay capital gains tax on any windfalls they receive when buying and selling bitcoin, or other digital assets.
Crypto tax has been in the crosshairs of the ATO, especially following the 2021 financial year when many traders reported capital gains thanks to bullish markets fuelled by the pandemic.
However, tax professionals have warned traders who participated in popular crypto “staking” schemes could find themselves with unexpectedly high tax bills this year.
Loading
“Staking” is similar to term deposits, where holders of crypto agree to lock up their assets for periods of time, in exchange for a percentage-rate reward. The staked assets also help run the blockchain network.
However, rewards earned via “staking” are categorised by the ATO as ordinary assessable income at the time they are earned, meaning they can bump up an investor’s tax bracket – if the reward is substantial. This becomes particularly significant if the value of a crypto asset plummets, such as the case with Terra, an algorithmic stablecoin that sensationally collapsed in value in May, wiping out more than $80 billion in value.
Shane Brunette, co-founder of crypto tax software provider CryptoTaxCalculator, told The Age and Sydney Morning Herald he was aware of one case where an investor had staked $1 million in Terra at a 20 per cent return rate, earning him $200,000 in additional income. This pushed them into the top tax bracket of 45 per cent.
