Recently, the ATO updated its guidance on Airdrops as the previous set of guidelines left room for many questions. It indicated that an Airdrop of an “established token” is taxable, however, not only did it not provide a formal definition of what an “established token” is, but it also failed to indicate how a “non-established token” would be taxed. Fortunately, the ATO has clarified its general position on its website.
In most cases, such as when you receive airdrops as part of a marketing campaign, the ATO considers airdrops to be ordinary income and subject to Income Tax at the time of receipt. In addition, if you sell coins or tokens from an airdrop and make a capital gain, you must pay capital gains tax. However, the recently updated part of the ATO airdrops guidance refers to “initial allocation” airdrops.
A crypto project is able to make an initial airdrop of tokens representing the first distribution of its tokens. Such tokens are the “initial allocation” if the project’s tokens have not been traded prior to the airdrop. In this case, the ATO states that upon receipt, they would not be considered ordinary income or a capital gain. If the project issues these tokens for free, they have a cost basis of zero ($0). Since these coins have never been traded, they have no market value at the time of the original airdrop. Now, if these tokens are not free, i.e. you have to pay to receive them, the cost basis of the tokens will be the amount you have paid to acquire them.
How can you adjust your airdrops in ACCOINTING.com to accurately track an initial allocation airdrop?
- Locate the airdrop that qualifies for initial allocation based on the ATO guidance within your dataset, click on the three dots (#1) and select “Edit”.
2. Click edit (#2), change the value to a nominal value such as $0.01 and save. Your airdrop will now be tracked as $0.01 of income and the tax basis will also be $0.01 which will allow you to report based on this new guidance.
Keep in mind that only when you dispose of the tokens does a CGT event occur. If you keep the tokens for 12 months or more, you can benefit from the CGT discount. Find out more about how to file your taxes in Australia in our ACCOINTING Australia guide.
The information contained in this article is for general information purposes and does not constitute financial, investment, legal or tax advice. The present content is not intended as a thorough, in-depth analysis, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. Please consult your tax advisor.