Receiving an airdrop means “free” crypto, but does the “free” include taxes? Many projects use airdrops to attract new customers to their platform and increase engagement from their marketing initiatives.
However, in many countries, receiving airdrops may come with a tax bill attached. In this article, we’re covering all the taxes when receiving airdrops in Australia.
In this article:
Do you pay tax on airdrops in Australia?
In Australia, according to ATO guidelines, when you receive an airdrop, you need to record its Fair Market Value (FMV) value as income in AUD and report it on your income tax return.
Sometimes you might receive an unsolicited airdrop as part of a project’s marketing initiative. Regardless, once the crypto airdrop arrives in your wallet, you are required to recognize that income at the time of receipt.
So, yes, you pay taxes when receiving airdrops in Australia.
Do you pay taxes for receiving multiple crypto airdrops?
Yes. Let’s look at an example.
Marie discovers a new DeFi project and tries it out. Months later, the project issues a new token and will conduct a monthly airdrop for holders who have tried the platform. The token's price was AUD 0.10, and Marie will receive 10K tokens per month for three months.
However, at the beginning of the 2nd month, the token will launch on many exchanges, and its price will fluctuate daily.
Let’s see how this impacts Marie’s taxes.
In the first month, Marie receives 10K tokens at AUD 0.10. When she receives the token, she is required to determine and report the Fair Market Value when it arrives in her wallet. In this case, Marie should report AUD 1000.
In the second month, the token is trading on several exchanges with a price of AUD 0.15 per coin. Marie receives an additional 10K tokens with an FMV of AUD 1500, which she records as assessable income.
Finally, in the 3rd month, Marie receives her last batch of airdropped tokens, each valued at AUD 0.2 on the exchange. Marie records AUD 2000 in total for the 3rd month.
In total, the Fair Market Value total for all the crypto airdrops that Marie received is AUD 4500. That’s the total ordinary income that Marie should report (for this particular airdrop) in her end-of-year tax return. In this case, Marie will pay AUD 4500 in taxes from receiving "free" crypto airdrops in Australia.
Do you need to pay capital gains tax if you sell your crypto airdrop?
After recognizing your crypto airdrop as ordinary income, the FMV becomes your cost base for future trading operations. If you later sell some or all of your crypto airdrops for a profit, you’ll have to pay capital gains tax on the difference between the ordinary income value and the sale proceeds.
As we’ve seen in our Cryptocurrency Tax Guide in Australia, any crypto-to-crypto or crypto-to-fiat trades are taxable events in Australia, subject to capital gains.
As a result, if you later sell your crypto airdrops for another crypto or fiat (e.g., AUD), and you have a profit, you’ll likely have to pay capital gains taxes in Australia.
Let’s expand on the example above:
Marie decides to sell the first 10k tokens that she received, valued at AUD 1000 upon receipt. Today (5 months later), Marie sells the same 10k tokens for AUD 0.50 each. As a result, Marie’s total sales proceeds are AUD 5000 (AUD 0.5 * 10000 tokens). The cost base of her tokens was AUD 1000, resulting in a taxable gain of AUD 4000.
Since Marie is selling her airdrop before holding for at least 12 months, she won’t have any long-term tax benefit. If she held for more than 12 months before selling, she would have a 50% tax discount on the proceeds of her sale.
How to report crypto airdrops in your taxes?
Airdrops are considered as income in your tax return, which is the same treatment as staking rewards, interest earned from lending cryptocurrency, or trading fees received from liquidity provisioning.
Therefore, the sum of the FMV received from airdrops should be declared alongside other income-generating activities.
Do I have to pay tax on airdrops in Australia?
Yes. You can do so in 3 simple steps:
Assess the Fair Market Value in AUD of each of the crypto airdrops you received with CoinTracking.
Calculate the total FMV received during each tax year.
Include it on your income tax return.
How to keep track of crypto airdrops for taxes?
Keeping track of many crypto airdrops may become challenging.
If you need help tracking the Fair Market Value of the different airdrops you received, you can easily import them into a crypto tax software like CoinTracking. Airdrops are commonly delivered directly to a wallet address, which can be directly linked to your CoinTracking account to automatically collect airdrop data.
Learn how to import your crypto airdrops into coinTracking:
The best crypto tax calculator in Australia: CoinTracking
CoinTracking can then help you take care of all the crypto tax reporting requirements beyond crypto airdrops:
25+ advanced reports, including which coins offer you a tax-free rate.
Automatic capital gains with 12 accounting methods (e.g., FIFO, LIFO, HMRC, ACB).
Generate complete and compliant tax reports.
Do you have any crypto tax questions? Check Full Service Australia
If you need help to report airdrops or other cryptocurrency income, Cryptocate specializes in creating cryptocurrency income and capital gains reports to ensure tax compliance. Talk to an expert from Cryptocate today by submitting a form on our Full Service page!
Check other crypto guides for Australian traders:
Cryptocurrency Tax Australia: The Complete Guide
NFT Taxes Australia: The Complete Guide
Bitcoin Regulation Around the World
The Best 85 Crypto Twitter Accounts to Follow
Crypto Debit Cards: The Best 5 Providers in 2021
Bitcoin Analysis: Here’s The Best 7 Tools To Find It
Non-Fungible Tokens: A 2021 Beginner’s Guide
*This post is a part of our educational series about crypto taxes in Australia, with the support and review of expert accountants from Cryptocate, the CT Full Service provider for Australia.
Disclaimer: All the information provided above is for informational purposes only and should not be considered as professional investment, legal, or tax advice. You should conduct your own research or consult with a professional financial advisor when investing.