Crypto traders warned of unexpected tax bills

Tax experts have warned that some cryptocurrency traders could be liable for tens of thousands of dollars in unexpected tax bills due to the collapse of leading stablecoin Terra, despite a crypto market crash pushing many investors into the red.

Crypto prices have fallen 60% in the past eight months after hitting record highs in November, when the industry’s market capitalization topped $4 trillion. The crash means investors are more likely to report a loss on their crypto trades in the past financial year.

The collapse of stablecoin Terra could expose some traders to surprisingly high tax bills.Credit:Bloomberg

The Australian Taxation Office (ATO) treats crypto as property rather than currency, which means investors must pay capital gains tax on any windfall gains they receive when investing. buying and selling bitcoins or other digital assets.

The crypto tax has been in the ATO’s sights, especially after fiscal 2021 when many traders reported capital gains thanks to pandemic-fueled bull markets.

However, tax professionals have warned traders who have participated in popular crypto “staking” programs could end up with surprisingly high tax bills this year.


“Staking” is similar to term deposits, where crypto holders agree to lock their assets for periods of time, in exchange for a percentage reward. Staked assets also help run the blockchain network.

However, rewards earned through staking are classified by the ATO as ordinary taxable income at the time they are earned, meaning they may increase an investor’s tax bracket – if the reward is substantial. This becomes especially important if the value of a crypto asset plummets, as in the case of Terra, an algorithmic stablecoin whose value sensationally crashed in May, wiping out more than $80 billion in value.

Shane Brunette, co-founder of crypto tax software provider CryptoTaxCalculator, said age and Sydney Morning Herald he was aware of a case where an investor had invested $1 million in Terra at a 20% rate of return, earning him $200,000 in additional income. This pushed them into the top 45% tax bracket.

Comments are closed.