Decoding NFTs: Your Tax Obligations
- Arnold Shields
- Apr 7, 2023
- 2 min read
Updated: May 16
What Are NFTs?
NFTs, or non-fungible tokens, are unique digital assets stored on a blockchain. Unlike cryptocurrencies such as Bitcoin or Ethereum, NFTs are not interchangeable. Each token is distinct and can represent ownership of digital items like art, music, videos, virtual property, and even social media posts.
NFTs allow digital creators, artists, musicians, and game developers, to monetise their work while giving collectors a way to own and trade provably rare digital assets.
Tax Obligations for NFT Investors in Australia
In the eyes of the Australian Taxation Office (ATO), NFTs are treated as capital assets. That means:
Buying an NFT is seen as acquiring an investment.
Selling or trading an NFT may trigger a Capital Gains Tax (CGT) event.
If you sell an NFT for more than you paid, the profit is subject to capital gains tax. Likewise, if you exchange one NFT for another or use an NFT to purchase something else, this may also be considered a disposal for CGT purposes.
Holding Period Matters
Held for 12+ months: You may qualify for a 50% CGT discount.
Held for less than 12 months: No discount applies; the entire gain is taxable.
If you’re actively trading NFTs, the ATO may consider your activities to be part of a business, in which case different tax rules apply, including income tax treatment rather than CGT.
Record-Keeping Is Crucial
The ATO expects NFT investors and traders to maintain accurate records of:
Purchase and sale prices
Dates of transactions
Digital wallet addresses
Platform fees and gas fees
Descriptions of the NFT assets
Failing to keep appropriate records could result in penalties or incorrect tax assessments.
Creators and GST Considerations
If you create NFTs and sell them as part of a business (e.g., a digital artist), you may also need to:
Declare the proceeds as business income
Register for GST if turnover exceeds $75,000
Issue invoices and report earnings like any other digital product or service
Final Thoughts
NFTs present an exciting frontier for digital ownership and innovation, but they also come with real-world tax obligations. Whether you're an investor, collector, or creator, understanding your tax position is essential to avoid surprises and stay compliant.
If you’re unsure about your tax responsibilities with NFTs, speak to an experienced tax advisor. At Dolman Bateman, we help Australians navigate the complexities of digital assets and tax law.
Disclaimer:
The information provided in this article is general in nature and does not constitute personal financial, legal or tax advice. While every effort has been made to ensure the accuracy of this content at the time of publication, tax laws and regulations may change, and individual circumstances vary. Dolman Bateman accepts no responsibility or liability for any loss or damage incurred as a result of acting on or relying upon any of the information contained herein. You should seek professional advice tailored to your specific situation before making any financial or tax decision.