Decentralized finance (DeFi) is a rapidly evolving space and the ATO is yet to release specific guidelines for interacting with these protocols.
DeFi is incredibly complex. Often, taxpayers aren’t able to keep track of transactions across multiple wallets and multiple exchanges, which can cause trouble when it’s time to lodge taxes. That’s why keeping accurate records is so important.
Still, it’s likely that transactions that happen on DeFi protocols will follow the same rules as other taxable cryptocurrency events. That means we can reasonably assume the following:
- Crypto-to-crypto trades/swaps are considered capital gains events.
- If you earn tokens as a reward for your efforts, it should be considered ordinary income. Earning liquidity provider fees and rewards on protocols like Uniswap and Compound would fall into this category.
What you’ll need to calculate your crypto tax bill
- Dates you acquired and sold your digital assets
- Market value of each one your assets at time of sale and time of purchase
- What the transaction was for and who the other party was (even if you just have their wallet address)
Remember, the ATO requires you to keep records of crypto transactions for at least 5 years after you prepared/acquired your records or 5 years after you completed your transactions (whichever comes later).
What is the deadline for lodging my 2022 taxes?
If you’re lodging your taxes for the financial year of July 1, 2021 – June 30, 2022 by yourself, it needs to be submitted by October 31, 2022.
Australians who lodge their tax return with an accountant have slightly more time. This deadline varies depending on your specific circumstances but can be as late as May 15, 2023.
Not paying your taxes on time can be expensive. The ATO may apply a “failure to lodge on time” (FLT) penalty. The longer it takes for you to lodge your tax return past the deadline, the higher this tax penalty will become.