{"id":223,"date":"2024-12-04T09:26:44","date_gmt":"2024-12-04T09:26:44","guid":{"rendered":"https:\/\/sites.exeter.ac.uk\/tarc\/?p=223"},"modified":"2024-12-04T09:54:46","modified_gmt":"2024-12-04T09:54:46","slug":"taxing-non-fungible-tokens","status":"publish","type":"post","link":"https:\/\/sites.exeter.ac.uk\/tarc\/2024\/12\/04\/taxing-non-fungible-tokens\/","title":{"rendered":"Taxing Non-Fungible Tokens"},"content":{"rendered":"\n

Dr. Elizabeth Morton<\/a>, Senior Lecturer, RMIT University, Melbourne, Australia.<\/p>\n\n\n\n

Email: Elizabeth.morton@rmit.edu.au<\/a><\/p>\n\n\n\n

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Often, when we think about the crypto economy, we think about Bitcoin. However, blockchain technology is not merely limited to cryptocurrencies. Non-fungible tokens (NFTs) offer a broader variety of use cases which, in turn, requires us to gain further understanding of the principles of taxation law. In our paper, Understanding Non-Fungible Tokens and the Income Tax Consequences<\/em><\/a>, which was recently published in The Journal of Tax Administration<\/em><\/a>, Michael Curran and I explore the characterisation of NFTs under Australian tax laws. In particular, we delve into the capital gains tax (CGT) regime for non-business taxpayers as well as exploring select issues pertaining to business activities within the Australian context.<\/p>\n\n\n\n

Taxing NFTs<\/h2>\n\n\n\n

Unlike cryptocurrencies, such as Bitcoin, NFTs offer a key attribute of uniqueness. Whilst NFTs represent a form of virtual property comparable to Bitcoin, they lack the same interchangeability that Bitcoin yields. For example, NFTs can represent anything from unique pieces of artwork to gaming artefacts. Blockchain technology supports the establishment of provenance and scarcity of such virtual property, along with opening secondary markets to participants and secondary income streams for creators. Irrespective of whether or not a taxpayer considers NFTs to be fad or passing craze, the tax implications require careful consideration.<\/p>\n\n\n\n

Australian Taxation<\/h2>\n\n\n\n

In recent times, the Australian Taxation Office (ATO) has extended its guidance<\/a> to cater not only for cryptocurrencies, but also for NFTs. The specific tax treatment to be applied, however, ultimately depends on not only the bespoke features of the NFTs, which require an appreciation of the construction of the NFT, but also the particular taxpayer\u2019s facts and circumstances.\u00a0 Similarly, it is likely that a taxpayer is engaging multiple layers away from fiat currencies<\/a> (like the Australian dollar) within the blockchain \u201cmetaverse\u201d. For example, a taxpayer may conduct transactions using cryptocurrencies to obtain NFTs or even trigger taxable events through activities between NFTs. We recognise that the very basis of cryptoassets being \u201cproperty\u201d is inherently controversial.<\/p>\n\n\n\n

Capital Account: Collectable or Personal Use?<\/h2>\n\n\n\n

When held on capital account, we argue that NFTs may be characterised as collectables or personal use assets, despite their digital nature. We must look to the taxpayer\u2019s intention and use throughout the ownership period to weigh up the appropriate tax implications. As in the physical world, there may be a blurring between artistic creations and other personal uses. With regard to NFTs, the nature of storage of the artwork or aesthetic digital feature that the NFT points to is of particular interest. Once a characterisation has been made in respect of the nature of the CGT asset, the taxpayer can continue to examine the consequences of such a classification, including special rules found within the CGT regime.<\/p>\n\n\n\n

Revenue Account: Hobby or Business?<\/h2>\n\n\n\n

When held on revenue account, NFTs can be considered trading stock, setting aside the CGT regime. Taxpayers should not restrict comparisons to share trading but contemplate the creative industries and the potential for micro businesses and professional creators (or gamers). Blockchain technology expands potential communities and realities. Along with it, further layers of complexities and broader taxing implications arise.<\/p>\n\n\n\n

Concluding Remarks<\/h2>\n\n\n\n

The evolving digital economy will inherently challenge traditional tax concepts and require careful policy considerations that balance revenue leakage and the simplification of the compliance burden. The metaverse developing through blockchain technology represents an alternative digital universe that enables novel oversight and the potential monitoring\/tracking of taxpayer activities. Perceptions of commodification through open markets need to be moderated by considerations of traditionally private and personal goods. We need to reflect on what ought to be on the radar of the tax authorities in an increasingly digital-native society.<\/p>\n\n\n\n

References<\/h2>\n\n\n\n