Skip to content

Tax on DeFi, NFTs and Mining 

Course provided by

As the world of cryptocurrencies continues to expand, there has been an increasing number of different decentralised applications offering a range of various activities such as staking, borrowing, lending and NFT trading. Mining as a hobby or as a business has also become increasingly popular due to the potential for passive income.  

However, these activities can come with tax implications that individuals and businesses need to be aware of. In this chapter, we’ll dive into the tax consequences of engaging in these activities in Australia to educate you on the potential tax liabilities. 

This course is for educational purposes only and should not be considered tax or financial advice. You should seek out the help of an accountant to obtain advice.  

Decentralised Finance (DeFi)  

DeFi activities can range from yield farming, staking, providing liquidity to pools, borrowing and lending to earning token rewards. Though it represents innovation, it also introduces intricate tax considerations that are challenging for taxpayers. Navigating through these complexities can be daunting, so we’ve dedicated an entire section to unravelling the many layers of DeFi and tax.  

Tax Implications of Staking   

Staking refers to the process of holding and validating cryptocurrencies in a wallet to support the operations of a blockchain network. It is somewhat similar to having savings in the bank and earning interest. And just like your savings in the bank, stakers are typically rewarded with additional tokens for their participation (similar to interest).  

For individuals staking cryptocurrencies as part of their personal investment strategy, the rewards received from staking may be considered ordinary income subject to income tax. The fair market value of the tokens received at the time of receipt is included in the individual’s assessable income.  

Keep in mind, if the individual then disposes of their staking rewards later on in the future (either in exchange for another cryptocurrency or for fiat currency), they will also be subject to capital gains tax with the market value of the rewards at the time they were received forming the cost basis for the capital gain or loss.  

Fictitious Example  

Income Tax  

  • Let’s say someone holds 200 SOL in a Solana staking pool.  
  • After a given period, they receive 25 SOL in staking rewards with a market value of $500.  
  • This $500 worth of SOL is considered income and will be added to their total assessable income.  

Capital Gains Tax  

  • Continuing, say they then decide to sell their SOL at a future date  
  • They may be subject to Capital Gains Tax (in addition to the income tax they’ve already incurred), with the cost base now being $500 (the market value of the staking rewards when they received them).  
  • For example, say they held onto that 25 SOL, and it increased to a value of $1200, at which time they decided to sell.  
  • Cost base: $500  
  • Capital proceeds: $1200  
  • Capital Gains = Proceeds – Cost Base = $1200 – $500 = $700  

As seen in this scenario, this fictitious person has incurred BOTH income and capital gains taxes.  

Tax Implications of Yield Farming  

Yield farming, a DeFi strategy where people can earn token incentives by providing assets to a protocol, also has tax implications. Like staking, earning new coins or tokens may generally be considered income, attracting income tax based on their fair market value at the time of receipt.   

However, an increase in the value of tokens through yield farming may be subject to Capital Gains Tax (CGT) upon disposal. The ATO’s latest web guidance covers the tax treatment of DeFi, including situations where providing assets to a protocol results in token rewards, so don’t get caught in the trap of thinking they won’t know what you are doing.  

Tax Implications of Liquidity Pools  

As a liquidity provider in DeFi, people add tokens to a pool and receive liquidity tokens in return. If they earn new coins or tokens, they may qualify as income depending on how they are distributed and therefore be subject to Income Tax. If these liquidity tokens appreciate, this increase may fall under the CGT regime upon disposal.   

In the most recent web guidance release, the ATO explicitly states that “A CGT event happens when you deposit your crypto assets into a liquidity pool.” In this case, the market value of the capital proceeds of the deposit, which is usually an LP token, are considered for CGT purposes.  When you withdraw assets from the pool, the LP token typically has to be returned, once again triggering a CGT event and resetting the holding period of your assets.  

While the web guidance is non-binding, liquidity pools are particularly tricky to track for tax purposes, so it is highly recommended to use a reputable crypto tax software provider and, if necessary, speak to a crypto-savvy tax professional.  

Tax Implications of Borrowing and Lending  

The ATO provided clarity on the tax implications of lending and borrowing in DeFI in their most recent web guidance release. It’s important to note that despite the use of terms like ‘lending’ and ‘borrowing’ in DeFi, these arrangements often have different tax implications than their traditional finance counterparts. 

According to the ATO, in most cases, engaging in DeFi lending and borrowing arrangements will result in a CGT event. Their reasoning is that these transactions typically involve either exchanging one crypto asset for another or exchanging a crypto asset for a right to receive an equivalent number of the same asset in the future. The key factor is whether beneficial ownership of the crypto asset changes hands. 

For example, if you ‘lend’ your cryptocurrency to a DeFi platform, and the terms of the contract are unclear about whether you retain beneficial ownership, or if your assets are pooled with those of other lenders, a CGT event is likely to occur.  

The capital proceeds for this CGT event are equal to the market value of what you receive in return for transferring the crypto asset, which may be another crypto asset or a right to receive assets in the future. It’s crucial to keep track of the value of your crypto assets at the time of these transactions to accurately calculate any capital gains or losses. 


Alex purchased 1,000 YCoin for $5,000 six months ago. He decides to ‘lend’ 500 YCoin (now worth $3,000) through a DeFi platform offering a 5% annual return. 

The terms of the smart contract indicate that Alex doesn’t retain beneficial ownership of the YCoin he has ‘lent’. 

As there has been a change in beneficial ownership of the crypto assets, a CGT event occurs when Alex ‘lends’ the YCoin to the platform. Alex will have a capital gain of $500 at the time of ‘lending’ the YCoin (assuming a cost base of $2,500 for the 500 YCoin). 

In return for his ‘loan’, Alex receives a token representing his right to reclaim 500 YCoin plus yield in the future. This right is valued at $3,000 at the time of the transaction, forming the cost base for any future CGT event when Alex exercises this right. 

The ATO has also noted that the income tax rules that apply to traditional securities lending do not apply to crypto asset ‘lending’ in DeFi. Therefore, any returns from these arrangements are likely to be considered in the context of CGT rather than income tax. 

Tax Implications of Airdrops   

Airdrops involve the distribution of free tokens to cryptocurrency holders as a promotional or reward mechanism. For example, some early adopters of protocols like zkSync and Blast were rewarded with generous airdrops in the past few months.  

In most cases, airdrops are taxed at the tokens’ fair market value at the time of receipt and are therefore included in their assessable income for income tax purposes. And just like staking rewards, if you dispose of your airdropped tokens at a later date, you will be subject to capital gains tax with the market value of the airdrop at the time it was received, forming the cost basis for the capital gains or loss.  

However, if the airdrop is an initial allocation of tokens and the tokens were never previously traded, and thus, do not have a fair market value, they may not be treated as income. Instead, they may be assigned a cost basis of $0, meaning that if a recipient ever disposes of them, the full proceeds will be subject to CGT.  

Interesting Fact

The first airdrop ever in crypto history happened in March 2014 when Iceland launched Auroracoin.

Tax Implications of Mining   

Mining involves validating and adding new transactions to a blockchain network. Miners are rewarded with newly minted cryptocurrencies along with transaction fees. The tax treatment of mining depends on whether it is conducted as a personal or business activity. 

Now you might be wondering whether a miner is seen as an individual or a business that is mining cryptocurrency. The main difference between the two tends to be that someone who’s mining as an individual is doing it as a hobby and may have a small setup at home. However, someone who’s mining crypto as a business tends to have extensive equipment set up and is expecting to generate a decent amount of income.  

Mining as an Individual  

For individuals mining cryptocurrencies as a personal investment or hobby, the proceeds generated are generally not subject to income tax. Instead, they will be liable for capital gains tax only when they choose to dispose of the mined coins.  

Remember, since the coins were obtained through mining, the cost basis is considered $0; therefore, the entire amount then received when selling mined coins represents the capital gain.  

Mining as a Business  

If mining is conducted as a business activity, the income generated is often treated as assessable income and is, therefore, subject to income tax. The business would also be subject to capital gains tax when they dispose of the mined coins in exchange for another cryptocurrency or fiat currency. However, the benefit for those mining as a business is that expenses incurred in running the mining operation, such as electricity costs and mining equipment, may be tax deductible (which is not the case for those mining as individuals).  

Did You Know?

One of the largest NFT sales by an artist was “Everydays: The First 5000 Days” by Beeple (Mike Winkelmann). This digital artwork, consisting of a collage of 5,000 individual images created over 13 years, was sold as an NFT for a staggering $69.3 million in March 2021. This sale marked a significant milestone in the NFT space, attracting global attention and setting a record for the highest-priced NFT artwork sold to date.

Tax Implications of Forks  

Forks occur when a blockchain network undergoes a significant change, sometimes resulting in the creation of a new cryptocurrency. There are two types of forks: soft and hard forks.  

Hard Forks  

In the case of a hard fork where a new cryptocurrency is created, the individual receives an allocation of the new cryptocurrency based on their holdings of the original cryptocurrency. 

The new cryptocurrency received is considered ordinary income and subject to income tax at its fair market value at the time of receipt. And similar to staking rewards & airdrops, the cost base of the new cryptocurrency is also set at the fair market value at the time of receipt for future CGT calculations.  

Soft Forks  

There are no immediate tax consequences for soft forks where no new cryptocurrency is created. The individual’s original cryptocurrency holdings remain unchanged, and no income or CGT event is triggered.  

How are NFTs taxed?  

You may or may not be familiar with NFTs (feel free to check the Swyftx course on NFTs here). Still, as a refresher, NFTs are unique digital assets that represent ownership or proof of authenticity of a particular item, such as digital artwork, collectibles, or in-game items. Regarding taxation, the ATO treats NFTs similarly to other forms of cryptocurrencies.  

For individuals who acquire and hold NFTs as an investment (as opposed to personal use), any capital gains made upon selling or disposing of an NFT may be subject to CGT. The CGT event occurs when the NFT is sold or exchanged for another cryptocurrency or fiat currency. Capital gain is calculated by subtracting the cost base (purchase price) from the selling price (proceeds).  


  • Suppose you purchased a Bored Ape NFT for $1,000 (bargain!)  
  • You then later sold it for $500,000.  
  • The capital gain is calculated by subtracting the cost base from the selling price.  
  • In this fictitious example, the capital gain would be $500,000 – $1,000 = $499,000.  

What if you’re selling NFTs for a living?  

For those who create and sell NFTs as part of their business (e.g. artists who sell their own digital artwork as NFTs), the income generated is generally treated as business income and therefore, would be taxed as part of business earnings.  

Claim 30% off new CTC plans using code SWYFTX30.

Crypto Tax Calculator is an Australian-made crypto tax solution designed to handle everything from exchange trading to complex on-chain activity.

Claim offer now

Next lesson

Disclaimer: The information on Swyftx Learn is for general educational purposes only and should not be taken as investment advice, personal recommendation, or an offer of, or solicitation to, buy or sell any assets. It has been prepared without regard to any particular investment objectives or financial situation and does not purport to cover any legal or regulatory requirements. Customers are encouraged to do their own independent research and seek professional advice. Swyftx makes no representation and assumes no liability as to the accuracy or completeness of the content. Any references to past performance are not, and should not be taken as a reliable indicator of future results. Make sure you understand the risks involved in trading before committing any capital. Never risk more than you are prepared to lose. Consider our Terms of Use and Risk Disclosure Statement for more details.