Law Firm Labels Australia’s New Crypto Tax Guidance as ‘Toilet Paper’

An Australian law firm suggests disregarding Australia’s unclear and controversial cryptocurrency taxation guidelines, likening them to “toilet paper.” 

The recent Nov. 9 release by the Australian Tax Office (ATO) outlines potential implications for taxation on decentralised finance (DeFi) activities, but Cadena Legal, in a Nov. 27 blog, highlights the non-binding nature of the guidance, arguing that it should not be considered a binding public ruling but rather equated to “toilet paper.”

We did an article on the ATOs rulings on DeFi here.

The legal team highlighted widespread confusion regarding the actions Australians can take within DeFi without incurring capital gains tax (CGT). Harrison Dell, the firm’s founder, later mentioned to Cointelegraph that the matter would find clarity through a public ruling:

“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.”

Dell, formerly employed as an ATO auditor from 2017 to 2019, expressed advising his clients to temporarily disregard the regulations:

“[It] is inciting panic in the Australian crypto community. I am actively telling people they are best ignoring it and get their own advice.”

However, one cryptocurrency tax expert cautioned against disregarding ATO guidelines, highlighting the potential risks. They argued that despite not being legally binding, investors might still face legal challenges and the need for legal representation if the ATO deems their actions contrary to their guidance.

Publications sought clarification from the ATO on Nov. 21 regarding whether activities like transferring funds through a bridge or staking Ether (ETH) on a liquid staking protocol like Lido would incur capital gains tax. However, the ATO did not provide a direct response.

In contrast, Dell’s perspective leans toward these two on-chain activities more likely triggering a CGT event, based on his oversight of a few private rulings.

“The ATO essentially said any token-to-token transaction is taxable and would likely include transferring a token from an L1 to an L2.”

“Whether this is correct or not is very difficult to say, as the ATO did not provide any useful reasons in their web guidance,” Dell stated.

Dell indicated that the regulations would stay ambiguous until either a public ruling clarifies matters or the government introduces new legislation to address the voids left by the ATO.

“In reality, I suspect we will all have to wait until someone strategically litigates these matters,” Dell said. “All of these solutions will take a long time, unfortunately.”