Your staking rewards are being taxed twice.

Your staking rewards are being taxed twice. And this is because when you’re receiving the asset, you get taxed. And also when you sell the asset, you get taxed. 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 are doing. So it’s important to get this right. Also, the new capital gains tax rules that change from the 1st of July in 2027 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 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 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 your earning ADA 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 looking for 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 I’m doing in general. So I put links and 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 that as a reference for yourself and then consult a tax accountant or a financial planner to do the rest of your reporting, etc. Now, a lot of this information is on the ATO website, the Australian 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 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 so let’s take the example that you’re staking ADA to a stake pool such as my own stake pool, ADA Oz. So let’s say you received 100 ADA for staking ADA at the pool and that was at $1.20. So essentially, that’s $120 worth of staking rewards that you need to declare at that point in time. And this is then taxed as income at that point.

Now, let’s say the price of ADA moved in a few months time to $2 and you decide to sell your asset there for $200. Now, the difference here, you don’t report and say that your entire taxable income is $200. You only pay on the tax of that difference of the gain that you get. So from $120 to $200, you only need to pay the tax on that $80 that you made in terms of profit.

So that’s your taxable part of your capital gains that you need to report on at that point in time. So I want 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 200 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 that happens in the crypto space is airdrops. And this happens when a chain forks or there is a participation event. And part of that, you can then claim your airdrop tokens for whatever it might be.

For example, Midnight had a big airdrop campaign and they gave away the night tokens to anyone that held various crypto assets from BTC, ETH, Solana and of course, ADA as well and XRP. So there were a lot of ecosystems that received this airdrop. 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 that entire sum, that entire difference.

So if you got it from zero and you sold it for 4000, your entire capital gains is that 4000 dollars. So that is something else that you need to think about when you are receiving airdrops 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, you need to incorporate the entire difference from zero to your sell price as that capital gain.

So that is also something that you need to think about and record when you receive these airdrop tokens. Now, this next part I want to talk about is about disposing of a particular asset or changing an asset within DeFi, decentralized finance. And this has stopped a lot of people from participating in DeFi in general because of the messiness around this. But if you record and report on all of it, it kind of is OK.

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 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 a different block chain. And for example, if you’re participating in Bitcoin DeFi on Cardano, you need to move your Bitcoin, wrap it into a different asset like wrapped BTC and then move it to the Cardano 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 and then creating a brand new one.

So you need to pay the capital capital gains on that. So it’s something you also need to keep in mind. And if you had BTC back from the very early days, that’s like cents 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 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 paying for that tax because it might have been something that you’re already doing. So it really depends on the situation, your timing and what you actually want to do with your assets. So like 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 2027, the whole idea of the indexation of your cost based asset all comes into play. And this is when the 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, make sure you hit that subscribe button.

But next year, when that capital gains tax rule kicks in, we have a minimum floor of 30 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 50 percent, something insane, then our cost base is then one hundred 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 our capital gains because of 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 30 percent. So if you’re a low income earner, you’re still going to be paying 30 percent tax at least.

So definitely pros 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, in regards to ADA staking rewards, you need to track a lot of things here. So you need to track the amount of ADA that you’re actually receiving on a particular date and what price you’re receiving that ADA for.

So that’s what you have to do now anyway. But you 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 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 I’m piecing together as well, it will make the tax reporting easy so you can submit and pay the right amount tax on time. Now, while I have your attention, I probably should mention that if you have any amount, substantial amount of crypto assets, it’s probably worthwhile getting a hardware wallet, whether it is one of these ones here, which is my favourite, a Keystone wallet. This is a fantastic device. It’s got a secure camera on their fingerprint scanner and is all open source, meaning 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 ledges. And they’ve been around for a very long time, securing millions and if not billions of 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 OK.

I don’t really mind. But as long as you go and do the research 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. All right. Now, with that out of the 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 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 12 months to get that maximum discount of 50 percent.

And with all these other things come into play as well. Just consult your tax accountant financial plan to find out what is best for your situation. Now, guys, if you got something out of this video, make sure you hit that thumbs up that like subscribe notification bell. If you have any ADA that you need staking, please consider my stake pool.

I’ve got some stats here around the pool at the moment. It’s going substantially well at the moment with almost 70 million ADA delegated to it from people like yourself that are watching my videos and trust my stake pool operations to delegate to it, to earn some staking awards. So thank you so much for all the delegates out there. I think there’s over 5000 people delegated to my stake pool 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 stake pool ADA Oz. Now, also, 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.