Decentralized finance (DeFi) is an offshoot of cryptocurrency and the blockchain technology. As a matter of fact, the Australian Tax Office is here to release official guidelines on how Australians should interact with decentralized finance applications. DeFi, as it is mostly called, is an incredibly complex protocols that taxpayers should take seriously so that they will not land into troubles with the authorities.
Since DeFi is still new and without ATO’s guidelines, we can assume that:
- Crypto-to-crypto trades/swaps are considered capital gains events.
- If you earn tokens as a reward for your efforts, it should be considered ordinary income. Earning liquidity provider fees and rewards on protocols like Uniswap and Compound would fall into this category.
What you’ll need to calculate your crypto tax bill
- Dates you acquired and sold your digital assets.
- What the transaction was for and who the other party was
- Market value of each one your assets at time of sale and time of purchase
Please note that the Australian Tax Office requires every person evolving in cryptocurrency to keep record of their transactions for at least five years during their tax return. Failure to adhere to this guideline may invalidate your tax return when you are eventually done.
What is the deadline for lodging my 2022 taxes?
If you are lodging a tax return by yourself for the July 1, 2021 – June 30 financial year, then you need to submit a tax return or not before the 31st October, 2022. For those who prefer to work with tax accountants, they have more time on their hands but should not be beyond May 15, 2023.
Please note also that failure to pay your taxes time as stipulated by the Australian Tax Office can be an expensive venture. The Australian Tax Office may apply a penalty if you fail to do the needful. The higher the length of time it takes you to submit your tax return, the higher the penalty imposed by the ATO.