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Australia’s tax regulator, the Australian Taxation Office (ATO), has caused confusion in the decentralized finance (DeFi) space with its recent guidance indicating that capital gains tax (CGT) may apply to various everyday DeFi transactions. 
The ATO’s failure to provide clear answers to inquiries from Cointelegraph has left DeFi users uncertain about their tax obligations. 
According to the ATO’s guidance issued on November 9, CGT may be triggered when transferring tokens to another address or smart contract where the sender doesn’t have “beneficial ownership” or if the destination address holds a non-zero token balance. 
The guidance mentions DeFi activities that could incur CGT, such as exchanging one crypto asset for a right to receive an equivalent number of the same crypto asset in the future, providing liquidity to a protocol, wrapping tokens, and loaning assets. 
However, it does not explicitly clarify whether activities like liquid staking or using layer-2 bridges are subject to CGT. 
The ATO responded to inquiries by stating that the tax consequences of a transaction depend on the specific steps taken on the platform or contract, as well as the individual circumstances of the taxpayer. 
This vague response has left investors unable to determine how to comply with the new guidelines, which have not yet been tested in court. 
READ MORE: <a href="https://www.cryptointelligence.co.uk/decentralized-exchange-kyberswap-suffers-46-million-crypto-heist-in-latest-defi-exploit/">Decentralized Exchange KyberSwap Suffers $46 Million Crypto Heist in Latest DeFi Exploit</a> 
A CGT event could have significant implications for DeFi users in Australia. For instance, if a user bought ETH for $100 and later staked it or sent it through a bridge to a layer-2 network when the price was $1,000, they might need to pay tax on the $900 “profit,” even if they haven’t sold the ETH. 
Liberal Party Senator Andrew Bragg criticized the lack of legislative clarity in the cryptocurrency tax rules, pointing out that the ATO has been left to make its own rules due to delays in government-commissioned findings on the matter. 
Experts in the field have varying opinions on the ATO’s stance. 
Some believe that a transfer via a bridge might trigger a CGT event, depending on changes in beneficial ownership, while others argue that staking contracts do not necessarily result in a CGT event as beneficial ownership remains with the user. 
Critics, such as Matt Walrath, the founder of Crypto Tax Made Easy, suggest that the ATO’s rules reflect a lack of understanding of DeFi and are overly aggressive. 
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These rules make it more challenging for Australian DeFi users to engage in activities like staking and transferring funds to layer-2 blockchains. 
In conclusion, the ATO’s unclear and potentially overreaching guidance regarding CGT on DeFi transactions has created uncertainty and complexity for Australian crypto users. 
The lack of legislative guidance exacerbates the situation, leaving users and experts in a state of confusion and concern about the tax implications of their DeFi activities. 
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Australian Tax Regulator’s Cryptocurrency Tax Guidance Leaves DeFi Users in the Dark

Crypto Intelligence

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