What is an NFT?
A non-fungible token is a unit of data on a blockchain that is not interchangeable with other units of data on the same blockchain. This makes it unique and therefore useful for representing ownership or identity. NFTs can be used to represent anything from digital art to in-game items to loyalty points.
NFTs are often compared to fungible tokens, which are units of data on a blockchain that are interchangeable with other units of data on the same blockchain. For example, Bitcoin is a fungible token because each Bitcoin is worth the same as any other Bitcoin. Ethereum is also a fungible token, with each ETH being worth the same as any other ETH.
However, NFTs are not interchangeable. Each NFT is unique and therefore has a different value. This makes them useful for representing ownership of digital assets or for use as a currency.
NFTs are stored on a blockchain, which is a distributed database that records data in a secure and tamper-proof way. Blockchains use cryptography to ensure that each transaction is unique and cannot be modified.
Do you get taxed on NFT sales?
Generally, yes, NFT sales are taxed, but different scenarios exist within this rule, that an experienced NFT tax accountant can help you to understand.
Whilst you are not taxed when you buy an NFT in Australia, and NFTs are GST-free, there are almost always tax implications for individuals and businesses who sell or trade NFTs.
For this reason, it’s hugely beneficial to work with an experienced cryptocurrency tax accountant who can maximise your earnings while helping you stay compliant.
How are NFTs taxed?
While it is best to discuss your individual needs with an NFT tax accountant, a general guide follows.
The initial sale (or royalties or commissions) of an NFT is generally assessable as business income.
If you close the business that made the initial sale, any further income generated by the original sale would likely be treated as personal income. If you sell the business, it will be treated as business income.
As an investor, you are responsible for meeting the NFT capital gains tax obligations, which are dependent on your income tax bracket. Professional traders of NFTs are liable for business income taxes related to the sale and trade of NFTs.
When you sell an NFT, tax obligations are treated as Capital Gains Tax assets. Selling, exchanging for cryptocurrency or another NFT, or gifting an NFT (unless given to a recipient who is eligible to claim it as tax-deductible) will be seen as a taxable transaction.
Are NFTs tax deductible?
Creators of NFTs can deduct expenses directly related to the creation of an NFT, and buyers can claim an expense deduction if an NFT is directly required for the purposes of their business.
Holding an NFT for more than a year can bring substantial CGT reductions into play. For more information that can help you get the most out of your NFT collection, speak to an experienced NFT tax accountant at Valles Accountants today.
Looking for NFT tax accountants near you? Contact the Valles NFT accountants in Sydney, Melbourne and Brisbane.
Should I work with a crypto accountant?
There are a lot of benefits to working with specialist crypto accountants.
You’ll receive tailored advice on remaining compliant with your crypto tax obligations – whilst making the most of all your opportunities.
If you’ve been investing in the NFT space and seek to remain compliant during tax time, working with a team of certified practising accountants is the best choice.
At Valles Accountants, our tax advice and business advisory services help investors and businesses across Australia find the best financial solutions.
What does the ATO say about NFTs?
The ATO states that “the tax treatment of NFTs follows the same principles as cryptocurrency.” This tax treatment states that you will not be taxed when you buy cryptocurrency assets – but you will be taxed when you sell them.
Investors pay capital gains tax and traders pay income tax. The ATO does track crypto activities, including when it is bought, traded or sold. As such, it’s important to keep accurate records of all your NFTs and crypto for tax purposes.
Can I manage crypto tax myself?
Yes, it is possible to manage NFT and crypto tax affairs yourself. But it’s important to ensure that all of your accounting, paperwork and records are in order.
Many cryptocurrency investors find it quicker, easier and more beneficial to work with a professional. NFT tax implications can be challenging to decipher, but not when you work with our specialist team.
At Valles, our crypto accounting firm helps countless investors in Australia remain compliant and up to date with their crypto tax. Whether you’re building an NFT artwork collection or building a stake in bitcoin, our team delivers outstanding advice and insights.
Who are the best NFT accountants in Australia?
It’s important to make sure you’re on top of all your crypto tax obligations. A specialist NFT accountant can help you do so.
ATO guidelines around cryptocurrency taxation can be challenging to interpret in full, so working with a dedicated team of crypto accountants is the best way to do so.
At Valles Accountants, our team is available to offer support and advice at tax time and throughout the year. Whether you’re looking for help with crypto, non-fungible tokens, smart contracts, digital artwork or the blockchain space, Valles will help you discover the best solutions.