Are NFTs taxable in Australia?

Highlights

• NFTs are popular across the world with assets like Beeple’s artworks and CryptoPunk characters bought at high prices
• In Australia, the taxation agency has similar obligations for NFTs and cryptocurrencies with additional rules for NFT creators
• Since gaming projects are offering NFT assets, it is critical for young purchasers to know about their tax implications

A non-fungible token (NFT) is not like Bitcoin or an altcoin. Even though Bitcoin and altcoins like DOGE are blockchain-based tokens, there is no separate underlying item that these represent. NFTs, on the other hand, are representative tokens of items that can include players in a video game and digital artwork created by individuals like Beeple or projects like CryptoPunks.

In Australia, almost everything related to the crypto industry falls under the classification ‘crypto assets’. The Australian Taxation Office (ATO) includes Bitcoin, altcoins, and NFTs in the said categorisation. How does the ATO levy tax on these items? Let us explore the taxation of NFTs in Australia.

NFT tax in Australia

First, yes, NFT assets are taxable in the country. Next, the ATO specifies that tax aspects depend on how the NFT asset is used. For an individual who acquires an asset, either directly from the creator or by using services of an intermediary like OpenSea, the subsequent sale can trigger a capital gains tax (CGT) event. It means any profit made by selling the NFT attracts a CGT levy. The ATO also mandates that every person dealing in crypto assets must maintain records.

Second, there are tax implications for NFT creators. For example, when the creator of the asset sells it, the transaction is considered a business income. Besides, because NFTs can provide commission in the form of royalty to the creator on every subsequent transfer, all such commissions are also business income. Lastly, if an NFT is acquired by a business and then sold at a profit, the capital gains tax must be paid. That said, the ATO allows any capital losses to be adjusted against capital gains.

Why you should care

Paying taxes is an obligation, and any evasion or false reporting can lead to heavy penalties. Since many young investors are active in the crypto sector, it is critical for them to understand how the ATO treats crypto assets. CGT becomes payable on every profitable transaction, even when one asset is exchanged for another, like BTC for ETH. That said, the sector faced severe headwinds in 2022 with prices of both cryptocurrencies and NFTs coming under intense pressure.

Data provided by CoinMarketCap.com

Bottom line

In some countries, the tax implications of crypto assets is a hazy subject, but not in Australia. Assets, including NFTs, attract a CGT levy, and the ATO mandates proper record-keeping. Since many gaming projects have launched NFT assets in the form of avatars and in-game items, purchasers of these, especially youth, should be extra cautious about tax implications.

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