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‘Toilet Paper’ – Cadena Legal Slams Recent ATO Guidance
- Crypto tax lawyer Harrison Dell suggests new DeFi tax guidelines from ATO akin to “single-ply toilet paper at best”.
- Dell calls for binding public ruling to provide some confidence to Australian crypto users.
- New guidelines indicate most DeFi transactions trigger taxable events.
An Australian crypto tax lawyer has suggested the ATO’s new DeFi tax guidance is “single-ply toilet toilet paper at best”, arguing the guidance is not backed by legal standing.
In a blog post published on Cadena Legal’s website, the firm’s founder Harrison Dell, says the ATO has a much better, though still limited, tool at its disposal to provide guidance to taxpayers: public binding rulings.
The ATO’s DeFi guidance was published on its website on November 9 and essentially advises tax-payers that virtually any use of DeFi triggers a capital gains tax (CGT) event.
What Is The New DeFi Guidance?
The ATO’s new DeFi tax guidance gives some overarching principles and a few simple examples around what kind of transactions do and don’t trigger taxable events—spoiler alert: the ATO says pretty much all DeFi transactions trigger taxable events.
The guidelines say the following activities via DeFi all trigger CGT events:
- lending or borrowing;
- providing liquidity;
- swapping tokens; and
- wrapping or unwrapping tokens.
However, the guidelines are light on detail and leave most of the specifics—such as precisely what kind of CGT event to record—up to individual taxpayers to figure out based on the inner workings of the DeFi protocol they used.
The guidance also says DeFi staking rewards must be recorded as assessable income and are treated in a similar way to interest income.
Guidelines Non-binding, Carry No Legal Weight
Dell’s primary criticism isn’t so much that the government is looking to tax DeFi, it’s that the guidelines are non-binding on both the ATO and on taxpayers, meaning taxpayers can’t be confident that if they follow the guidelines they’ll be safe from penalties.
The Australian tax penalty regime is based on how severe your behaviour was. In general, if you have a reasonably arguable position, you should not be subject to penalties and interest if the ATO, a Court or Tribunal determines that your position is incorrect.”
Harrison Dell, Founder Cadena Legal According to Dell, someone can be exempt from penalties if they can make a reasonable argument that they tried to adhere to relevant tax law. This hinges on paying due regard to relevant authorities. Dell said, “it is unlikely that the ATO’s website is a relevant authority.” Thus, the comparison to toilet paper—tissue thin.
In an interview with Coin Telegraph, Dell explained that until the ATO makes a binding public ruling confusion will remain:
If the ATO released a public ruling, we could all rely on that, but instead, we have this non-binding nonsense which makes everyone more confused and will probably reduce willing tax compliance by the Australian crypto community.
Harrison Dell, Founder Cadena Legal In fact, he said the vagueness of the situation meant he was advising clients to ignore the guidance, telling Coin Telegraph that the new guidance, “is inciting panic in the Australian crypto community. I am actively telling people they are best ignoring it and get their own advice.”
However, Dell also notes he has already had dozens of clients request private rulings from the ATO regarding their DeFi taxes and the ATO has relied on its DeFi guidance to make rulings, suggesting it’s worthwhile at least attempting to adhere to the guidelines for now.
Author
Jody McDonald
Jody is a Brisbane-based freelance writer who specialises in writing about business, technology, and the future of work.
