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How are NFTs taxed in Australia?
Non-Fungible Tokens (NFTs) are digital markers that represent a certificate of authenticity and proof of ownership for items including digital artwork, music, game characters and website domains.
NFTs are recorded and stored on a digital ledger aka the blockchain. NFTs authenticate wares such as cryptoart, providing an immutable digital footprint of ownership. To better comprehend what this means, think of NFTs as unique identifiers tethered to individual works. When digital items are bought, sold or gifted, an NFT transaction is validated across the entire blockchain network.
Does Australia have an NFT tax?
The Australian Taxation Office (ATO) asserts that “income tax treatment of non-fungible tokens (NFTs) follows the same general principles as cryptocurrencies”. Therefore NFTs are assets and subject to Capital Gains Tax (CGT).
The ATO defines an NFT as:
- a unit of data stored on a digital ledger (blockchain)
- unique and not interchangeable
- a digital asset and not a form of digital currency
How are NFTs taxed in Australia?
If you’ve transacted with NFTs in any way - bought, sold, gifted, traded, exchanged for cryptocurrency - you must declare all transactions and any capital gains or losses as part of your income tax return.
Generally, a capital gain or capital loss is the difference between what an asset cost you and what you received when you disposed of it. Be aware that the cost price must include any transaction fees charged.
If you hold an NFT for more than 12 months you’ll be eligible to receive a 50 per cent discount on the Capital Gains Tax (CGT). However, NFT buyers who hold an asset for less than one year will be charged the full amount.
It’s in your interest to claim any losses sustained on your crypto investments. When you have both capital gains and losses in the same financial year, they’re calculated to establish your net capital gain or loss for that year. If you incur a net capital loss, this can be carried forward to a future capital gains year and used to offset those gains.
There are certain circumstances where you may claim NFTs as a personal use asset and be exempt from paying CGT.
In early 2022, the ATO announced four key focus areas for tax season. These were record-keeping; work-related expenses; rental property income and deductions; and capital gains from crypto assets, property, and shares.
It’s important to note that as an NFT collector, you aren’t buying original content. It’s unlikely you’ll have any copyright claims to the artwork associated with your purchase. The content creator retains these rights and most NFT platforms pay the original artist any royalties on NFT trades. Essentially, you’re buying tokens that link your name to a specific artwork on the blockchain. NFT purchases serve as proof of ownership of that record. Value is often determined by community interest in the artwork and other factors, such as rarity and controversy.
How much tax will you pay on NFTs?
How much you owe in income tax will depend on your total income throughout the year, including your taxable NFT assets. The following table outlines the ATO’s income tax rates for the 2022/23 financial year:
Income | Tax Rate |
$0 - $18,200 | 0% |
$18,201 - $45,000 | Nil + 19c of each $1 over $18,200 |
$45,001 - $120,000 | $5,092 + 32.5c of each $1 over $45,000 |
$120,001 - $180,000 | $29,467 + 37c of each $1 over $120,000 |
$180,000+ | $51,667 + 45c of each $1 over $180,000 |
The above rates do not include the Medicare levy of 2%.
Determining the exact amount of tax you’ll pay or receive on your NFT gains and losses will depend on your personal tax circumstances. Consulting a tax accountant or financial expert may help you figure out how much tax you’ll be charged or how much money you’ll get back.
What crypto records should I keep?
The ATO advises that you keep records of each of your NFT assets and every transaction including:
- Receipts when you buy, transfer or dispose of NFT assets
- A record of the date of each transaction
- A record of what the transaction is for and who the other party is (their NFT asset address)
- Digital exchange records
- A record of the value of the NFT asset in Australian dollars at the time of each transaction
- Records of agent, accountant and legal costs
- Digital wallet records and keys
- A record of software costs that relate to managing your tax affairs
It’s also advisable to set recurring reminders to export your transaction history at least every three months, and before closing any accounts with an exchange or wallet provider.
The ATO also suggests using a reputable Australian NFT tax calculator - there are free and low-cost services available to sync your exchange and wallet accounts - and to contact the NFT exchange's customer service if you need to recreate lost records.
You should keep records for five years from the later date of when you obtain the records, when transactions or acts are complete or the year that the CGT event happens.
Can I calculate NFT taxes on my own?
If you’ve done your research and are confident that you’ve explored all avenues available for discounts, deductions and declarations then, of course, you can complete your tax return unassisted.
It may be beneficial to consult a tax accountant to ensure you’re maximising your returns and legally fulfilling your tax obligations. There may be minor details you miss or confusing questions, depending on your circumstances.
Please note - every investment is a risk. Past performance is not a reliable indicator of future performance. Before investing in NFTs, cryptocurrencies, equities, or any other assets, consider seeking financial advice to determine the best options for your financial situation and goals.
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