Australia DeFi Tax Guide 2025

ATO Treatment of DeFi

The ATO treats DeFi transactions the same as traditional crypto:

• Cryptocurrency = CGT asset (property)
• Earning tokens = ordinary income
• Token swaps = CGT event A1 (disposal)
• Cost base tracking required

Yield Farming & Liquidity Mining

Tax Treatment

Earning tokens = ordinary income:

• Income = fair market value in AUD when received
• Report at Item 24 (Other income) on myTax
• Taxed at marginal rate (19-45% + 2% Medicare levy)
• Cost base for CGT = income value

CGT Discount Eligibility

Holding period starts when you receive rewards:

• Held >12 months from receipt: 50% CGT discount applies
• Held ≤12 months: no discount

Example: Yield Farming

• March 2024: Provide liquidity to Uniswap
• June 2024: Claim 100 UNI tokens worth AUD $1,200
• Ordinary income: $1,200
• Cost base: $1,200
• July 2025 (13 months later): Sell for $1,800
• Capital gain: $1,800 - $1,200 = $600
• Discount: $600 × 50% = $300 taxable

Providing Liquidity

Adding Liquidity

Not a CGT event if you receive LP tokens:

• LP tokens = beneficial interest in assets
• No disposal of underlying tokens
• Cost base transfers to LP tokens

Removing Liquidity

CGT event if token amounts change:

• Calculate gain/loss on each token
• Compare cost base to market value received
• Apply 50% discount if held >12 months

Impermanent Loss

Not deductible until realized:

• While providing liquidity: no tax impact
• When removing: capital loss is realized
• Capital losses offset capital gains only

Example: Liquidity Pool

• Deposit: 1 ETH ($4,000) + 4,000 USDC ($4,000)
• Receive: 100 LP tokens
• CGT: $0 (not a disposal)
• LP token cost base: $8,000
• 10 months later, withdraw: 0.9 ETH ($5,400) + 4,100 USDC ($4,100)
• ETH: Cost $4,000, FMV $5,400 = $1,400 gain (no discount)
• USDC: Cost $4,000, FMV $4,100 = $100 gain (no discount)
• Total: $1,500 capital gain

Lending & Borrowing

Lending Crypto

Interest = ordinary income:

• Report when received and accessible
• FMV in AUD = income
• Cost base = income value

Borrowing Crypto

Taking loan = not taxable:

• Loans aren't assessable income
• Depositing collateral = not a disposal
• Interest paid = not deductible (unless business)

Liquidations

Forced liquidation = CGT event:

• Calculate capital gain/loss on collateral
• Report on myTax

Example: Lending on Aave

• Lend 10,000 USDC (cost $10,000)
• Earn 5% APY = 500 USDC ($500)
• Ordinary income: $500
• Cost base for interest: $500

Example: Borrowing on Compound

• Deposit 2 ETH collateral (cost $8,000)
• Borrow 5,000 USDC
• Tax: $0 (loans not taxable)
• Repay 5,250 USDC (5,000 + 250 interest)
• Interest not deductible

Token Swaps

Every swap = CGT event A1:

• Disposing of token A = capital gain/loss
• Acquiring token B = new cost base at market value
• No 50% discount if held ≤12 months

Example: Uniswap Swap

• Buy 1 ETH for $4,000
• Swap for 4,000 DAI when ETH = $6,000
• Capital gain: $6,000 - $4,000 = $2,000
• Held <12 months: $2,000 taxable (no discount)
• DAI cost base: $6,000

Wrapped Tokens

Conservative View (ATO Likely Position)

Wrapping = CGT event:

• ETH → WETH = disposal + acquisition
• WETH → ETH = disposal + acquisition
• Usually no gain/loss if same value

Alternative View

Wrapping = not a CGT event:

• No change in beneficial ownership
• WETH represents ETH (like a receipt)
• Riskier without ATO guidance

⚠️ Recommendation: Conservative approach is safer. If wrapping at same value, no gain/loss anyway.

Airdrops & Governance Tokens

Receiving tokens = ordinary income:

• Income = FMV in AUD when received
• Report at Item 24 (Other income)
• Cost base = income value
• 12-month holding period starts from receipt

Example: UNI Airdrop

• Receive 400 UNI worth $2,000
• Ordinary income: $2,000
• Cost base: $2,000
• 15 months later, sell for $3,000
• Capital gain: $3,000 - $2,000 = $1,000
• Taxable: $1,000 × 50% = $500

Capital Gains Tax Rates

Income Tax Rates (2024-25)

Plus 2% Medicare levy on all income

CGT Discount

• Held >12 months: 50% discount (pay tax on 50% of gain)
• Held ≤12 months: No discount (pay tax on 100% of gain)

How to Report

myTax (Individuals)

1. DeFi Income: Item 24 (Other income) - "Cryptocurrency rewards"
2. Capital Gains: myTax capital gains section
3. Enter each disposal: date acquired, cost base, date sold, proceeds
4. System calculates 50% discount if held >12 months
5. Net capital gain adds to taxable income

Business Return

If trading as a business:

• Report on business income statement
• No CGT treatment (ordinary income)
• No 50% discount
• Can claim business expense deductions

Deadlines

• Individual (self-lodged): October 31
• Individual (via tax agent): May 15 (following year)
• 2023-24 financial year (Jul 1, 2023 - Jun 30, 2024) due Oct 31, 2024

Gas Fees

Incidental costs add to cost base or reduce proceeds:

• Acquiring: Add gas fees to cost base
• Disposing: Deduct gas fees from capital proceeds
• Reduces your capital gain

Record Keeping

Keep records for 5 years after lodging:

• Transaction hashes
• Wallet addresses
• AUD values at transaction times
• Gas fees in AUD
• Smart contract interactions
• LP token holdings and dates
• Protocol reward claims

Tools for DeFi Tracking

• Koinly - Best Australia support, myTax integration
• CryptoTaxCalculator - Australian-focused, ATO-compliant
• CoinTracker - Strong DeFi categorization

Common Mistakes

1. Not reporting DeFi rewards as income: Must report at FMV when received
2. Forgetting 12-month holding period for discount: Starts from receipt, not deposit
3. Not tracking cost base properly: Need accurate records for each token
4. Missing wrapped token disposals: ETH → WETH likely taxable
5. Not including gas fees in cost base: Reduces your tax liability
6. Claiming impermanent loss before realized: Must withdraw liquidity first

FAQs

Is DeFi yield taxed as income or capital gains in Australia?

DeFi rewards are ordinary income when received (taxed at marginal rate). When you sell those tokens later, the gain is capital gains (50% discount if held >12 months from receipt).

Do I pay tax on unclaimed DeFi rewards?

Probably not until claimed and accessible. ATO hasn't issued specific guidance, but general principle is income when received.

Are gas fees tax deductible in Australia?

Gas fees aren't separately deductible but add to cost base (acquiring) or reduce capital proceeds (disposing).

Is providing liquidity a taxable event?

Adding liquidity is generally not a CGT event if you receive LP tokens. Removing is taxable if token amounts change.

Can I offset DeFi losses against my salary?

No. Capital losses can only offset capital gains. They can't reduce ordinary income (salary, DeFi rewards, etc.).

Do I need to report DeFi if I haven't sold anything?

If you earned DeFi rewards (income), yes. If you only provided liquidity and haven't withdrawn, no (until you withdraw or dispose).