Your staking rewards are being taxed twice.

Episode Transcript
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Speaker 1 (00:00):
Your staking rewards are being taxed twice, and this is
because when you're receiving the asset you get tax, and
also when you sell the asset you get tax. And
a lot of people are only reporting on one side
of this, So we're going to look into the details there.
The ato's data matching program is looking into all of
this type of activity and is monitoring exactly what you

(00:22):
are doing, so it's important to get this right. Also,
the new capital gainst tax rules that change from the
first of July and twenty twenty seven will have an
impact on how you report things as well, so let's
get into all these details. Hey everyone, my name's Peter.
If it's your first time here, make sure you hit
that thumbs up like subscribe notification bell. I talk a

(00:43):
lot of things crypto. I'll also be doing a video
about crypto tax reporting and how I'm incorporating AI into
that to make that process a lot quicker and easier,
as well as looking into potentially reducing your tax footprint
by moving overseas, whether it's your company or yourself, and
looking at the pros and cons of that and if

(01:04):
it's actually worth it or not. So if you're interested
in any of that, make sure you hit that subscribe
button down below. But let's get into this topic here
about tax reporting on your staking rewards, whether it's earning
aida or Solana or ethereum, whatever it might be. You
need to get this right now. This is just my
own research. This is not financial advice. If you are

(01:26):
looking for a good financial advice, make sure you reach
out to your accountant or financial planner because your situation
may be very different to that of my own and
the research that I'm doing in general. So I put
links in references down below to all the research that
I've done on this and what I need to do
for my own tax reporting. So please use it as
a reference for yourself and then consult a tax accountant

(01:48):
or a financial planner to do the rest of your reporting.
Exception now, a lot of this information is on the
ATO website, the Strand Tax Office website, and I'll pull
those references as well down below for you guys and
up on screen so you can see exactly what is
required here. But in regards to staking rewards, when you're
earning staked assets, you need to report this as income

(02:10):
from the point of when you receive that particular asset.
So let's start off by looking at the staking rewards
and how this is actually taxed here. So let's take
the example that you're staking Aida to a stakepool such
as my own stakepool aida OZ. So let's say you
received one hundred eighter for staking aider at the pool,
and that was at a dollar twenty. So essentially that's

(02:32):
one hundred and twenty dollars worth of stak and rewards
that you need to declare at that point in time,
and this is then tax as income at that point. Now,
let's say the price of Aida moved in a few
months time to two dollars and you decide to sell
your asset there for two hundred dollars. Now, the difference

(02:52):
here you don't report and say that your entire taxbile
income is two hundred dollars. You only pay on the
tax of that difference of the gain that you get.
So from one hundred and twenty to two hundred, you
only need to pay the tax on that eighty dollars
that you made in terms of profit. So that's your
taxable part of your capital gains that you need to

(03:14):
report on at that point in time. So I wanted
to make that really clear for people. I'll put a
link down below in terms of that reference on the
ATO website. But a lot of people had been reporting
their tax at that two hundred mark instead of the
gain that they made, so it's really important to differentiate
that and have a clear understanding about how to report
on your capital gains at that point. Another big thing

(03:37):
that happens in the crypto space is air drops, and
this happens when a chain fawks or there is a
participation event, and part of that you can then claim
your air drop tokens for whatever it might be. For example,
Midnight had a big air drop campaign and they gave
away the Night tokens to anyone that held various crypto

(03:58):
assets from BT see ether, Solana and A of course
eight as well and to XIP. So there were a
lot of ecosystems that receive this air drop. But the
difference here with this one is that the cost of
this was zero. So when you sell the asset for
whatever price it is, your capital gains on that is

(04:18):
that entire sum, that entire difference. So if you got
it from zero and you sold it for four thousand,
your entire capital gains is that four thousand dollars, So
that is something else that you need to think about
when you're receiving air drops and when you dispose of it.
So the income side of it is a zero cost
because you got it for free, but when you sell it,

(04:40):
you need to incorporate that entire difference from zero to
your cell price as that capital gain. So that is
also something that you need to think about and record
when you receive these air drop tokens. Now, this next
part I want to talk about is about disposing of
a particular asset or changing an asset within dfive decentralized finance.

(05:01):
And this has stopped a lot of people from participating
in DeFi in general because of the messiness around this.
But if you record a report on all of it,
it kind of is okay, and the benefits is something
that you need to look into if it outweighs the
cost of reporting and the tax events around it. But essentially,
if you're moving assets around the ecosystem from one chain

(05:23):
to another, you may come into an event where you
need to wrap a token or block it into a
DeFi protocol or whatever it might be, and all of
those events are disposing of your crypto assets, and you
need to pay the capital gains tax on top of that. So,
for example, if you have bitcoin and you want to
participate in DeFi, you usually have to move it to

(05:45):
a different blockchain. And for example, if you're participating in
Bitcoin DeFi on Kadano, you need to move your bitcoin,
wrap it into a different assets like wrapped BTC, and
then move it to the Kadano ecosystem and then participate
in borrowing, lending, or supplying of liquidity on the chain. Now,
when you do that wrapping, you're disposing of one asset

(06:08):
and then creating a brand new one, so you need
to pay the capital gains on that. So it's something
you also need to keep in mind. And if you
had to BTC back from the very early days at
like sense for a couple of cents and you dispose
of it now as a wrapped asset, you need to
actually report on that entire gain there. So it's something

(06:28):
you need to weigh out to see if it's even
worthwhile reporting at that point in time and converting into
another asset for another chain to earn yield on it.
Maybe it is, Maybe it is worth earning that extra
yield and reporting and to paying for that tax because
it might have been something that you're already doing. So
it really depends on the situation you're timing and what
you actually want to do with your assets. So, like

(06:50):
I said, you need to consult a financial planner and
accountant to make sure that this is all on board
and what works best for you. When the brand new
capital gains tax rules come into play in twenty twenty seven,
the whole idea of the indexation of your cost based
asset all comes into play. And this is when the

(07:12):
tracking of all this gets a little bit messy and
you will need to use something like AI or really
good reporting tool to be able to track when you
receive that asset and look at the indexation of inflation
from that point to when you actually sell. So this
is something I've been putting in place for myself. So
if you want to learn more about that, maake ssure
you hit that subscribe button. But next year, when that

(07:34):
capital gains tax rule kicks in, we have a minimum
floor of thirty percent capital gains tax, plus we need
to also factor in the cost base of our asset
and inflation as well. So if we bought an asset
for one hundred dollars and inflation was at fifty percent
something insane, then our cost base is then one hundred

(07:55):
and fifty dollars. And if the asset went up to
a value of two hundred dollars, then our capital gains
is only fifty dollars as opposed to one hundred dollars
if that inflation indexation wasn't put in place. So in
that sense, the indexation reduces our capital gains because of

(08:15):
our cost base also increasing. So that's kind of a
good thing because inflation is being taken into account and
it is reducing our potential capital gains there. But unfortunately
there is also that minimum floor of thirty percent, so
if you're a low income earner, you're still going to
be paying thirty percent tax at least. So definitely pros

(08:37):
and cons there with that new ruling. If you want
to learn more about the capital gains tax changes, you
can check out my other video here in the top
right hand corner where I talk more about that. Now
regards to AIDA staking rewards, you'll need to track a
lot of things here, so you need to track them
out of AIDA that you're actually receiving on a particular
date and what price you're receiving that aida for. So

(09:00):
that's what you have to do now anyway, But you're
also now have to look into the amount of inflation
from that date of receiving that asset to when you
sell your asset, and that amount of inflation will affect
your cost based price. So, like I said, it could
be a good could be a bad thing based on
the amount of inflation. But you also need to track

(09:22):
that and this is where a really good AI tool
will come into play, so it will help you with
that reporting. Now, there is a lot of really good
tax reporting software out there that hopefully will update and
take all of this into account because it will make
our lives so much easier. And also with some AI
tools that are piecing together as well, it will make
the tax reporting easy so you can submit and pay

(09:45):
the right amount of tax on time. Now, why I
have your attention, I probably should mention that if you
have any amount substantial amount of crypto assets, it's probably
worth while getting a hardware wallet, whether it is one
of these ones here, which is my favorite, a keystone.
This is a fantastic device. It's got to secure camera
on their fingerprint scanner and is all open source, meaning

(10:08):
you can download the schematics online and actually build your
own hardware device and verify that it's all secure. So
if you're technically inclined, you can do that. But it's
a fantastic device overall. The other one which is very
popular is the ledgers, and they've been around for a
very long time, securing millions and if not billions of

(10:28):
dollars of crypto assets around the world. Now, I've got
links down below to my affiliate links there which I
earn a bit of revenue from. So it's a great
way to get a hardware device and secure your assets
while also supporting my channel as well. Now you can
bypass those links down below. That's okay. I don't really mind.
But as long as you go and do the research

(10:49):
around securing your assets with a hardware device, learn how
to use it, and learn how to take custody of
your assets and secure them on chain. Right now, with
that other way, let's get back to the video. Now,
there's a lot of things that you could do to
reduce your amount of tax at the moment in regards
to disposing of your staking rewards. Now, time is everything

(11:10):
when it comes to disposing of your assets. We've got
that brand new capital gains tax law that is coming
into play, so you may be looking into disposing of
some assets if you've held it for longer than twelve
months to get that maximum discount of fifty percent, and
with all these other things coming into play as well,
just consult your tax accountant, financial planner to find out

(11:31):
what is best for your situation. Now, guys, if you've
got something out of this video, make sure you hit
that thumbs up that like subscribe notification. Bel If you
have any aida that you need staking please consider my stakepool.
I've got some stats here around the pool at the moment.
It's going substantially well at the moment with almost seventy
million eight delegated to it from people like yourself that

(11:52):
are watching my videos and trust my stakepool operations to
delegate to it to earn some staking awards. So thank
you so much for all the delegates out there. I
think this is over five thousand people delegated to my
statepool at the moment, so it's quite a lot of
people that I've built trust with, So thank you so
much for putting trust in my statepool A to us now. Also,

(12:14):
if you want to support the channel, I've got YouTube
memberships down below. I also have buy me a Coffee
links down there as well, so if you want to
support that way you can. And like always, guys, stay positive.
Lots more crypto videos coming up and I'll see you
in the next video.

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Your staking rewards are being taxed twice.

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