The Australian Taxation Office (ATO) has clarified its stance on the capital gains tax (CGT) treatment of decentralized finance (DeFi) and the wrapping of crypto tokens. The ATO has emphasized its commitment to taxing Australians on capital gains during the wrapping and unwrapping processes. According to the ATO, the wrapped token is not considered the native token itself, but rather an algorithmically linked representation of it. The wrapping or unwrapping process does not involve the reformatting of the native token and cannot be seen as a single CGT asset undergoing a transformation. Instead, the wrapped token is locked up at the bridge, and an equivalent amount of native token is issued on the other side. The ATO has also stated that transferring crypto assets to an address not controlled by the sender or to an address that already holds a balance will be considered a taxable CGT event. The market value of the property received in return for the transferred crypto asset determines the capital proceeds for this event. The ATO is also considering the taxation of liquidity pool users and providers, as well as DeFi interest and rewards. Additionally, the wrapping and unwrapping of tokens will trigger a CGT event, reinforcing the ATO’s intention to continue taxing capital gains associated with these activities. The Australian government has proposed stricter regulations for cryptocurrency trading platforms, aiming to subject them to existing laws governing other financial service providers to enhance oversight of customer funds.

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Geography	Australia
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Companies	Australian Taxation Office (ATO)
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