NFT taxes are a novel topic and have gained astronomical popularity in recent months in Australia. The Australian Tax Office has recently released a clarifying guide that explains the tax treatment of Non Fungible Tokens (NFTs) in Australia.
This article explores how NFTs are taxed in Australia for NFT creators and investors, explaining tax deductions from NFTs, and simulating tax scenarios.
Stay tuned to learn all about NFT taxes in Australia.
Are NFTs taxable in Australia?
In short, yes.
NFTs have the same tax treatment of cryptocurrency in Australia. Both NFTs and crypto are considered the same type of asset by the ATO and subject to taxes.
However, the type of taxes you pay depends on other factors. Let’s look at the differences.
Do you pay taxes on NFTs as a creator?
Yes. If you’re an artist and you create an NFT under your business and sell it, you’ll have to report business income.
Moreover, if you gain any future commission (e.g., royalties), you’ll have to report its Fair Market Value (FMV) when receiving them and report business income.
Can you deduct NFT creation fees on taxes?
Yes, if you are an artist creating NFTs as part of running a business, the fees associated with creating an NFT are considered an expense incurred from earning your assessable income and are therefore deductible. This includes gas fees and the cost of minting new NFTs, as well as platform-related expenses from listing or sale.
How are NFTs Taxed as a creator? A tax scenario.
Sarah created a new type of NFT: The Excited Mutant Ape collection.
In March 2021, Sarah sold the first piece of the collection for 1 ETH. That 1 ETH was worth AUD 4K at the time. As a result, Sarah reported, in March 2021, a business income of AUD 4K (an invoice for that sale).
In August 2021, she received 0.1 ETH because of a secondary sale of her NFT creation. 1 ETH is worth AUD 3K at the time, so she reports a business income for that royalty of AUD 300.
At the end of the tax year, Sarah has to sum all the sales based on their FMVs and calculate all the business proceeds from NFTs.
Do you pay taxes on NFTs as an investor?
If you’re an investor in NFTs, you’ll have to pay capital gains taxes in Australia. The tax treatment of NFTs for investors is the same as if you were trading crypto for another crypto or crypto for FIAT.
To calculate your capital gain, you need to record the cost base of your NFT – the Fair Market Value (FMV) of the NFT when you bought it – as well as the total proceeds (FMV in AUD) when you sell it. The capital gain on the NFT sale is the difference between your sales proceeds and the cost base. The rate of capital gains tax you are required to pay depends on your total income for the year, among other factors.
Can you deduct transaction fees when selling NFTs?
While you cannot technically deduct transaction fees from the sale of an NFT, the fees can be considered part of the cost base of the NFT or deducted from the sale proceeds.
Imagine you purchase an NFT for $100 and pay a $10 fee. The NFT’s cost base can be recorded as $110, which means when you sell the NFT for $200, you have made a $90 gain instead of $100.
How are NFT sales taxed in Australia? A tax scenario.
Most individuals who trade crypto or NFTs as a hobby are considered investors in Australia, where capital gains taxes apply to NFT sales. You’re considered a trader and taxed under trading stock rules if you trade professionally or as a business entity. In that case, NFT sales would be subject to business income taxes.
Let’s look at a tax simulation for NFT taxes as an investor:
In April 2021, John bought a CryptoPunk for 10 ETH, when 1 ETH was worth AUD 3K. As a result, John’s cost base is AUD 30K. In August 2021, John sold the same CryptoPunk for 30 ETH when 1 ETH was worth AUD3.5K. The total sales proceeds are AUD 105K.
The capital gains on the NFT sale are AUD 75K (AUD 105K – AUD 30K). Since John is an investor and not a trader, he will pay capital gains taxes on the NFT sale.
How much tax do I pay on crypto gains in Australia?
As an investor in Australia, your capital gains tax rate will depend on your total income tax bracket. You’ll need to add up your total yearly income (including capital gains) to determine the final tax rate paid on your crypto gains.
However, if you hold your crypto or NFTs for more than 12 months, you can enjoy a 50% CGT discount on the tax owed from your gains.
How to report NFT trades for tax purposes?
As per ATO guidelines, you need to keep an updated list of all your cryptocurrency and NFT trades, including the cost base, date, and the purpose of the transaction.
Since NFTs have the same tax treatment as other crypto assets, the same reporting requirements apply.
The easiest way to track your NFT sales, cost bases, and capital gains is with the help of a crypto tax software like CoinTracking, where you can easily import them in a few clicks.
Check out this video showing you the easy steps to import your NFTs with this method:
NFT taxes in Australia: What to consider
Top 7 NFT tax implications to be aware of:
- Non-Fungible Tokens are considered property in Australia, the same as other crypto assets.
- NFT trades as an investor in Australia are taxed under capital gains taxes.
- Sales of NFTS as a trader or business entity are treated as business income.
- NFT creators conducting a business must report business income for NFT sales and any commissions/royalties earned through the tax year.
- To be tax compliant in Australia, you need to report any capital gains or income derived from NFT sales.
- You can manage your NFT tax using crypto tax software like CoinTracking.
How to calculate NFT taxes in Australia?
CoinTracking makes calculating NFT tax in Australia in a few easy steps:
- Import your NFT trades from your Ethereum public address into CoinTracking
- CoinTracking calculates your capital gains from NFTs automatically using ATO-compliant accounting methods
- Generate your capital gains tax outputs for inclusion in your tax return.
Best NFT tax calculator in Australia: CoinTracking
CoinTracking is the best NFT tax software for Australian traders, making it easy to import all your trades from 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 your NFT tax reporting requirements.
After importing your NFT and crypto trades, CoinTracking calculates the gains/losses for every transaction, according to the accounting method used in Australia, while generating the necessary tax reports for each year.
Do you have any crypto tax doubts? Check Full Service Australia
CoinTracking also offers a full service for Australian traders. A CoinTracking expert from Cryptocate, a premier Australian crypto tax firm, will review your account, fix any errors, and ensure you submit your tax returns error-free, including NFTs.
*This post is a part of our educational series about crypto taxes in Australia, with the support and review of expert accountants from Cryptocate, the CT full-service provider for Australia.
Disclaimer: All the information provided above is for informational purposes only and should not be considered as professional investment, legal, or tax advice. You should conduct your own research or consult with a professional financial advisor when investing.