Australian Tax Office Clarifies Capital Gains Tax Treatment for DeFi and Token Wrapping

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The Australian Taxation Office (ATO) has provided guidance on the tax treatment of decentralized finance (DeFi) and wrapping crypto tokens. The ATO clarified that Australians will be taxed on capital gains when wrapping and unwrapping tokens. This is part of the ATO’s focus on crypto capital gains, which was outlined in May 2022. The transfer of crypto assets to an address that the sender does not control or that already holds a balance will be considered a taxable event. The ATO stated that the capital proceeds for this event are equal to the market value of the property received in return. The tax event will depend on whether the individual recorded a capital gain or loss. The ATO also mentioned that wrapping and unwrapping tokens will trigger a capital gains tax event, regardless of the price at the time. Some individuals have criticized the ATO for not being technology-neutral, which they believe could impact the financial future of young Australians. In addition to these tax considerations, a local crypto exchange called CoinSpot was reportedly hacked for $2.4 million. The stolen funds were converted to Bitcoin and spread across different wallet addresses.

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