When you wrap or unwrap a crypto asset, you exchange one crypto asset for another and a CGT (Capital Gains Tax) event happens, the update said. "The capital proceeds for the CGT event equal the market value of the wrapped token at the time of the exchange."
"Being able to wrap tokens is a valuable and necessary cross-chain interoperability tool," said Michael Bacina, Digital Assets lawyer at Piper Alderman Lawyers. "To have a purely technological function triggering a tax event and tax payable is not something users would expect when using crypto-assets."
The move could have a chilling impact on Australians using DeFi even though it is a non-binding tax office guidance representing that tax office's interpretation of the law, meaning it is not the same as a court decision or legislation. It has also garnered criticism from the nation's crypto industry with one lawyer saying this could also apply to transferring tokens to centralized exchanges.
#Australia #Taxation Office #Crypto assets #Capital gains tax #Wrapped tokens #DeFi #Lending protocols
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