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    DeFi Users Seek Clarity on Australia’s New Tax Rules

    On November 9, the Australian Taxation Office (ATO) issued fresh instructions indicating that specific decentralized finance (DeFi) transactions are subject to capital gains tax (CGT). Unfortunately, crucial aspects of these regulations remain vague, causing Australian cryptocurrency investors to face confusion regarding their compliance obligations.

    No Straight Answers on Everyday DeFi Taxation

    According to the instructions, if one transfers tokens to smart contracts or addresses that do not belong to them, they are obliged to pay CGT. This encompasses tasks such as staking, lending, and wrapping tokens.

    Despite industry members’ direct inquiries, the ATO remained tight-lipped about whether common DeFi activities such as liquid staking Ether through Lido or utilizing layer-2 bridges for fund transfers would attract Capital Gains Tax (CGT).

    Suppose the application of CGT encompasses such transactions. In that case, it implies that investors would be liable to pay taxes on the profits they may have acquired, regardless of whether they have sold their cryptocurrency or experienced any genuine gains. Let’s consider an instance: an individual from Australia purchased Ether for $100 and subsequently transferred it through a bridge when the price had surged to $1000. In this scenario, the investor would owe taxes on the virtual profit of $900, all while still retaining ownership of the ETH.

    The apprehension among DeFi users persists as the ATO’s position on tax implications solely revolves around the actions carried out on the platform and individual circumstances. This lack of clarity leaves users bewildered about adherence to the ambiguous regulations.

    Experts Critique Aggressive Approach to Taxing DeFi

    Leading figures in the industry contend that the tax agency’s aggressive stance highlights its limited grasp of the intricate workings of DeFi protocols.

    According to Matt Walrath, the creator of Crypto Tax Made Easy, there seems to be a lack of comprehension regarding the true essence of these transactions.

    According to Walrath, staking and lending do not entail the transfer of beneficial ownership as users retain the ability to withdraw their assets at any given time.

    He mentioned that despite mortgaging my house to the bank, I remain the rightful owner with all the benefits.

    The Board of Taxation was entrusted by the previous Australian administration to formulate suitable tax regulations for cryptocurrencies. However, these recommendations, which have been postponed on two occasions, are not anticipated to be unveiled until February 2023.

    Senator Andrew Bragg expressed his dissatisfaction with the government’s inaction by voicing his concerns about the ATO’s autonomy in creating rules without proper legislation during an interview with Cointelegraph.

    Australian crypto users are being greatly burdened by the absence of definitive laws, resulting in a state of perplexity and ambiguity, as stated by the individual.

    Those engaged in DeFi contend that incorporating routine actions like liquid staking or utilizing bridges is crucial for reaping the technological advantages offered by cryptocurrency networks. Imposing taxes on such activities acts as a deterrent to the widespread adoption of this technology. They call for the formulation of rational tax regulations through consultations with industry experts, rejecting the imposition of broad and uninformed rules.

    The dire need for clarity is unanimously acknowledged by professionals, even if it entails taxation. Their expectations lie in the prompt introduction of refined laws, cultivated through cooperation with the industry. However, until that moment arrives, Australian DeFi users are left with no alternative except to endure a prolonged wait or resort to legal action independently.

    Frequently Asked Questions:

    1. Could you please provide an overview of the most up-to-date instructions issued by the Australian Taxation Office (ATO) regarding transactions associated with decentralized finance (DeFi)?

    A2: On November 9, fresh guidance was unveiled by the ATO, indicating that specific DeFi transactions are subject to capital gains tax (CGT), although uncertainties persist regarding crucial elements within these regulations.

    2. In DeFi transactions, which activities are outlined in the instruction as being liable for CGT?

    Transferring tokens to smart contracts or external addresses that do not belong to the user incurs CGT (Cryptocurrency Gains Tax). This includes various actions such as staking, lending, and wrapping tokens.

    3. Has the ATO offered clear guidance regarding ordinary DeFi undertakings, such as liquid staking or executing fund transfers utilizing layer-2 bridges?

    The lack of confirmation from the ATO regarding potential capital gains tax (CGT) implications for routine activities in the DeFi space has caused bewilderment among crypto investors in Australia.

    4. What are the consequences for DeFi users when there is a lack of clarification?

    A4: Australian crypto users find themselves amidst uncertainty and complexity due to the absence of precise regulations. Consequently, investors may be required to pay taxes on their digital currency profits even if they haven’t executed any crypto sales.

    5. What is the reason behind industry leaders expressing their disapproval towards the ATO’s method of imposing taxes on DeFi?

    Industry experts believe that the ATO’s overly assertive approach is evidence of their limited comprehension of DeFi intricacies. They are strongly advocating for the establishment of rational tax policies that are formulated in conjunction with professionals from the industry.

    6. By what time can we anticipate the issuance of guidelines regarding cryptocurrency tax regulations from the Board of Taxation?

    The existing uncertainty is further compounded by the delay in the expected arrival of recommendations from A6, which were initially set for February 2022 but are now anticipated for February 2023.

    7. How does the lack of explicit laws affect individuals in Australia who utilize cryptocurrency?

    Senator Andrew Bragg has brought attention to the government’s failure to establish definitive regulations, resulting in confusion and uncertainty among users. The absence of legislation has contributed to a convoluted landscape, leaving individuals perplexed and dissatisfied.

    8. What is the general perspective of DeFi users regarding the taxation implications of routine actions necessary for reaping technological advantages?

    Advocates of DeFi contend that imposing taxes on fundamental undertakings stymies the acceptance of technology, emphasizing the need for carefully crafted legislation created in collaboration with professionals from the field.

    Credit: https://assets-global.website-files.com/63f902d79a33f7ff016cde0b/63f902d89a33f751ea6ce72b_6390a1067507a14cb8c3bcfe_DEFI.jpeg

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