NFT taxation is a new topic and has gained astronomical popularity in recent months in Australia. The Australian Taxation Office recently released an illustrated guide explaining the tax treatment of Non-Fungible Tokens (NFTs) in Australia.
This article explores how NFTs are taxed in Australia for NFT originators and investors, explains tax deductions from NFTs, and simulates tax scenarios.
Stay tuned to find out all about NFT taxes in Australia.
Are NFTs taxed in Australia?
In short, yes.
NFTs enjoy the same tax treatment as cryptocurrencies in Australia. Both NFTs and cryptocurrencies are considered the same type of assets by the ATO and are subject to taxation.
However, the type of taxes you pay will depend on other factors. Let’s take a look at the differences.
Do you pay taxes on NFTs as a builder?
Yes. If you are an artist and you create an NFT within your business and sell it, you will have to report business income.
Furthermore, if you earn any future commission (such as royalties), you will have to report the Fair Market Value (FMV) when you receive it and report the business income.
Can you deduct an NFT creation fee on taxes?
Yes, if you are an artist creating NFTs as part of running a business, the fees associated with creating the NFT are an expense incurred from earning your assessable income and are therefore deductible. This includes the gas fee and the cost of new minting of NFTs, as well as platform-related expenses from listing or selling.
How are NFTs taxed as a creator? tax scenario.
Sarah has created a new type of NFT: the Excited Mutant Ape set.
In March 2021, Sarah sold the first lot of the group for 1 ETH. 1 ETH was worth 4,000 Australian dollars at the time. As a result, in March 2021 Sarah reported a business income of A$4,000 (billed for this sale).
In August 2021, it received 0.1 ETH due to a secondary sale of its NFT production. 1 ETH is worth A$3,000 at the time, so I reported a trading income of that property of A$300.
At the end of the tax year, Sarah has to collect all sales based on FMVs and calculate all business revenue from NFTs.
Do you pay taxes on NFTs as an investor?
If you are an investor in NFTs, you will have to pay capital gains taxes in Australia. The tax treatment of NFTs for investors is the same as if you were trading one cryptocurrency for another cryptocurrency or a FIAT cryptocurrency.
To calculate your capital gains, you need to record your NFT’s cost base – the fair market value (FMV) of the NFT when you bought it – plus the total proceeds (FMV in AUD) when you sold it. The capital gain from selling an NFT is the difference between your sales revenue and your cost base. The capital gains tax rate you have to pay depends on your total income for the year, among other factors.
Can You Deduct Transaction Fees When Selling NFTs?
While you can’t technically deduct transaction fees from the sale of an NFT, the fees can be considered part of the NFT’s cost base or deducted from the proceeds of the sale.
Imagine you bought an NFT for $100 and paid a $10 fee. The cost base of the NFT can be recorded as $110, which means that when you sell the NFT for $200, you have earned $90 instead of $100.
How are NFT sales taxed in Australia? tax scenario.
Most individuals who trade cryptocurrencies or NFTs as a hobby are considered investors in Australia, where capital gains taxes apply to sales of NFTs. You are considered a trader and subject to tax under the stock trading rules if you trade professionally or as a business entity. In this case, NFT sales will be subject to business income taxes.
Let’s look at a tax simulation of NFT taxes as an investor:
In April 2021, John bought CryptoPunk for 10 ETH, when 1 ETH was worth 3,000 Australian dollars. As a result, John’s cost base is A$30,000. In August 2021, John sold the same CryptoPunk for 30 ETH when 1 ETH was worth 3.5 thousand Australian dollars. Total sales revenue is 105,000 Australian dollars.
The capital gain from the sale of the NFT is A$75,000 ($105,000 – A$30,000). Since John is an investor, not a trader, he will pay capital gains taxes on the sale of the NFT.
How Much Tax Will I Pay on Cryptocurrency Gains in Australia?
As an investor in Australia, your capital gains tax rate will depend on your total income tax bracket. You will need to add your total annual income (including
capital gains) to determine the final tax rate paid on your crypto winnings.
However, if you hold your cryptocurrency or NFT for more than 12 months, you can enjoy a 50% CGT discount on the tax due on your winnings.
How are NFT trades reported for tax purposes?
According to the ATO’s guidelines, you need to keep an updated list of all cryptocurrency and NFT transactions, including the cost base, date and purpose of the transaction.
Since NFTs have the same tax treatment as other crypto assets, the same reporting requirements apply.
The easiest way to keep track of NFT sales, cost bases and capital gains is with the help of crypto tax software like CoinTracking, you can import them easily with just a few clicks.
Check out this video that shows you the easy steps to import your NFTs this way:
NFT taxes in Australia: What to consider
Top 7 NFT tax implications you should be aware of:
Non-fungible tokens are proprietary in Australia, like other crypto assets.
NFT traders are taxed as an investor in Australia under capital gains taxes.
NFTS sales as a dealer or business entity are treated as business income.
NFT originators operating a business must report business income for NFT sales and any commissions/royalties earned during the tax year.
To be tax compliant in Australia, you need to report any gain or income from NFT sales.
You can manage your NFT tax with crypto tax software like CoinTracking.
How are NFT taxes calculated in Australia?
CoinTracking makes calculating NFT tax in Australia in a few easy steps:
Import your NFT trades from your public Ethereum address into CoinTracking
CoinTracking calculates capital gains from NFTs automatically using ATO-compliant accounting methods
Create a capital gains tax output to include on your tax return.
Australia’s Best Crypto Tax Calculator: CoinTracking
CoinTracking is the best crypto tax software for Australian traders, which makes it easy to import all your trades from over 110 exchanges/wallets, including DeFi, NFTs, staking, etc.
For NFT creators and investors, CoinTracking is the easiest solution to become tax compliant. CoinTracking can take care of all NFT tax reporting requirements.
After importing NFT and Crypto deals, CoinTracking calculates the gains/losses for each transaction, according to the accounting method used in Australia, while generating the necessary tax reports for each year.
Do you have any doubts about cryptocurrency taxes? Check out Full Service Australia
CoinTracking also offers a full service for Australian traders. A CoinTracking expert from Cryptocate, a leading Australian crypto tax company, will review your account, fix any errors and ensure that your tax returns are submitted error-free, including NFTs.
Check out our other crypto guides for Australian traders:
Cryptocurrency Australia Tax: The Complete Guide
Australian Taxation and Cryptography Bureau
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*This post is part of our education series on Crypto Taxes in Australia, backed and reviewed by expert accountants from Cryptocate, the full service CT provider of Australia.
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.
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