Bought an NFT last year? The Tax Office wants to know

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This article was originally published in The Chainsaw.

The tax treatment of non-fungible tokens (NFTs) are now on the radar of the Australian Tax Office (ATO), and there are a few things you need to know as we approach tax season. Buying, selling, minting NFTs, as well as getting free NFTs airdropped to your wallet, are now all potentially taxable events. And if you have bought NFTs with crypto, you need to report it to the ATO.

You need to report when you use any cryptocurrency to buy NFTs. This is because if you bought crypto a while ago, and it has gained in value, when you “dispose” of it to buy the NFT, the capital gains that you have made on that cryptocurrency must be declared. If you have lost money on that crypto, you may still need to report this.

NFTs have seen significant price falls in the last 12 months after gaining significant popularity at the start of 2022.Credit: Bloomberg

For the NFT enthusiasts out there who have a back catalogue of trades to now report, it may seem overwhelming, but you can take a shortcut by using software to do it for you. There are several companies that offer such software in Australia, such Koinly and CryptoTaxCalculator. They can keep track of your NFT trades as well as your crypto trades, as long as you tell the software where all your wallets are.

The software automates a report and spits it out at tax return time, so you don’t have to keep track of all your trades in the financial year. You can hand this report to your accountant, or use it to do your own tax return.

NFTs and tax: How does it work?

Taxation of NFTs follow the same principles as cryptocurrency. This means that the following activities will trigger a taxable event:

• Selling NFTs for crypto
• Exchanging one NFT for another NFT
• Giving an NFT as a gift (unless it is to a tax-deductible gift recipient like an Australian charity)
• Buying an NFT with crypto.

Shane Brunette is the CEO of CryptoTaxCalulator, and says there are a few things that NFT aficionados need to be aware of. For example, if you get a free NFT airdropped into your wallet, this could be a taxable event.

Brunette explains, “If you get gifted a Bored Ape NFT, well then that’s going to be quite significant — it might be worth $10,000 or more. You definitely need to be aware that there are probably some tax implications there.”

Even for free NFTs, you may need to report them, depending on the circumstances as to how they arrived in your wallet.

What if you just buy an in-game NFT?

NFT gaming has the potential to trigger multiple tax events.

• Anyone who creates an NFT item and then sells it in a game may be required to pay tax on the sale.
• Buyers of these NFT items may owe capital gains tax on the crypto used to pay for them.
• If NFT items are traded with other gamers, this could be a taxable event.
• If you misplace any of these items, it may not qualify as a loss.

Read the rest of this article on The Chainsaw.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. Investors should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

The Age and The Sydney Morning Herald are owned by Nine, which also owns The Chainsaw.

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