Do you pay taxes for receiving airdrops in Australia?

Getting an airdrop means “free” encryption, but does “free” include taxes? Many projects use airdrops to attract new customers to their platform and increase engagement from their marketing initiatives.

However, in many countries, a tax invoice may be attached to the receipt of airdrops. In this article, we cover all taxes when receiving airdrops in Australia.

Do you pay taxes on airdrops in Australia?

In Australia, according to ATO guidelines, when you receive an airdrop, you need to have your Fair Market Value (FMV) recorded as revenue in Australian dollars and reported on your income tax return.

Sometimes you may receive an unwanted airdrop as part of a project marketing initiative. Regardless, once the cryptocurrency airdrop arrives in your wallet, you have to recognize this income at the time of receipt.

So, yes, you do pay taxes when receiving an airdrop in Australia.

Do You Pay Taxes For Receiving Many Cryptocurrency Airdrops?

Yes. Let’s look at an example.

Mary discovers and experiments with a new DeFi project. Months later, the project releases a new token and will perform a monthly airdrop for carriers who have tried the platform. The price of the token was AUD 0.10, and Mary would receive 10,000 tokens per month for three months. However, at the beginning of the second month, the token will be launched on several exchanges, and its price will fluctuate daily.

Let’s see how that affects Mary’s taxes.

In the first month, Mary received 10,000 tokens at A$0.10. When she receives the token, she has to determine the fair market value and report it when it reaches her wallet. In this case, Mary must report A$1,000. In the second month, the token is trading on several exchanges at a price of 0.15 Australian dollars per coin. Mary gets an additional 10,000 coins with the FMV of A$1,500, which she records as assessable income. Finally, in the third month, Mary received her last batch of airdropped tokens, each worth AUD 0.2 on the exchange. Mary grossed $2,000 AUD for the third month.

In all, the total fair market value of all crypto airdrops that Mary received is A$4,500. This is the total ordinary income that Mary must report (for that particular airdrop) on her year-end tax return. In this case, Mary will pay A$4,500 in taxes from receiving “free” airdrops of cryptocurrency in Australia.

Do you need to pay capital gains tax if you sell your crypto take down?

After recognizing the airdrop of cryptocurrency as ordinary income, FMV becomes the cost base for future trades. If you later sell some or all of your cryptocurrency airdrops to make a profit, you will have to pay capital gains tax on the difference between the normal income value and the proceeds from the sale. As we have seen in the Australian Cryptocurrency Tax Guide, any trades between cryptocurrencies or cryptocurrencies are taxable events in Australia, and are subject to capital gains.

As a result, if you later sell your crypto airdrops for another cryptocurrency or other fiat currency (for example, AUD), and have a profit, you will most likely have to pay capital gains taxes in Australia.

Let’s expand on the example above:

Mary decided to sell the first 10,000 tokens she received, valued at A$1,000 upon receipt. Today (5 months later), Mary sells the same 10,000 tokens for A$0.50 each. As a result, Mary’s total sales revenue was A$5,000 (0.5 * A$10,000). Its tokens cost base was A$1,000, which resulted in a taxable gain of A$4,000.

Because Mary sells airdrops before holding them for at least 12 months, she won’t get any long-term tax benefits. If you keep it for more than 12 months before selling, you get a 50% tax deduction on the proceeds of its sale.

Subscribe to CoinTracking today!

How do you report cryptocurrency airdrops to your taxes?

Airdrops count as income on your tax return, and are the same treatment as bonuses accrued, interest earned from lending cryptocurrency, or trading fees received from providing liquidity.

Therefore, the total FMV received from airdrops must be declared along with other revenue-producing activities.

Do I have to pay tax on airdrops in Australia?

Yes. You can do it in 3 simple steps:

  1. Evaluate the fair market value in Australian dollars of each of the cryptocurrency airdrops you received using CoinTracking.

  2. Calculate the total FMV received during each tax year.

  3. Include it on your income tax return.

How do you track cryptocurrency airdrops in relation to taxes?

Tracking many cryptocurrency airdrops can become difficult.

If you need help tracking the fair market value of the various airdrops you’ve received, you can easily import them into a crypto tax program like CoinTracking. Airdrops are usually delivered directly to a wallet address, which can be linked directly to your CoinTracking account to automatically collect airdrop data.

Learn how to import encrypted airdrops into tracking coins:

Australia’s Best Crypto Tax Calculator: CoinTracking

CoinTracking is the best crypto tax software for Australian investors, allowing trades to be imported from hundreds of exchanges, including DeFi/DEXes, Binance Smart Chain, MATIC, NFTs and more!

CoinTracking can then help you take care of all your crypto tax reporting requirements other than crypto airdrops:

  1. Over 25 advanced reports, including coins that offer you a tax-free rate.

  2. Automatic capital gains through 12 accounting methods (eg, FIFO, LIFO, HMRC, ACB).

  3. Generate complete and compliant tax reports.

Do you have any questions about crypto taxes? Check out Full Service Australia

Cryptocate, CoinTracking’s full-service Australian partner and leading Australian crypto tax firm, offers a range of services to help with cryptocurrency reporting. If you need help reporting airdrops or any other crypto income, Cryptocate specializes in generating cryptocurrency income and capital gains reports to ensure tax compliance. Talk to an expert from Cryptocate today by submitting a form on our full service page!

Check out our other crypto guides for Australian traders:

  1. Cryptocurrency Australia Tax: The Complete Guide

  2. NFT Taxes Australia: The Complete Guide

  3. Australian Taxation and Cryptography Bureau

  4. Find crypto tax accountants near me

  5. Bitcoin regulation around the world

  6. The 85 Best Crypto Twitter Accounts To Follow

  7. Top 12 Markets for NFT

  8. Crypto Debit Cards: Top 5 Suppliers in 2021

  9. Bitcoin Analysis: Here are the 7 Best Tools to Find It

  10. Non-Foldable Tokens: A Beginner’s Guide to 2021

*This post is part of our education series on Crypto Taxes in Australia, backed and reviewed by expert accountants from Cryptocate, Australia’s full service CT provider.

Disclaimer: All information provided above is for informational purposes only and should not be considered professional, legal or tax advice. You should do your own research or consult with a professional financial advisor when investing.

Leave a Comment