As investments in cryptocurrency continue to increase, holders and advisers need to be aware of potential tax obligations. The Australian Taxation Office (ATO) has indicated its desire and ability to crackdown on the taxation of cryptocurrencies (discussed in our recent article here).

In our previous articles on cryptocurrency we have discussed the capital gains tax (CGT) results on disposals as well as the circumstances when a disposal will be on taxed as ordinary income and subject to marginal tax rates. In this article we consider two instances where the receipt of cryptocurrency tokens raises tax liabilities.  Two of these instances relate to staking rewards and airdrops.

Staking rewards

Given the decentralised nature of blockchain technology which underpins cryptocurrencies, a consensus mechanism is required to confirm and validate transactions.

For bitcoin and many other cryptocurrencies, the consensus mechanism utilised is a “proof of work” system where computer resources are directed to solving complex mathematical equations to authenticate transactions. This process is referred to as “mining”, and “miners” are those that contribute their computer resources to validating the transactions. By doing so, miners order transactions and create new blocks in the chain of transactions. In exchange, miners that successfully solve the mathematical equation receive tokens (cryptocurrency coins) from the network as a reward.

An alternative consensus method known as “proof of stake“ has also been utilised by many cryptocurrencies. Under the proof of stake model users stake their tokens to become a validator of the network. These validators are referred to as “forgers” and the reward forgers receive for staking their tokens is ordinarily the transaction fee charged by the network. Examples of cryptocurrencies that utilise a proof of stake consensus mechanism include Dash, Neo and Qtum. Additionally, parts of the Ethereum network utilise a proof of stake consensus mechanism.

The ATO has flagged that the monetary value (in equivalent Australian dollars) of the rewards miners or forgers receive at the time those rewards are obtained will be taxed as ordinary income, as will any other form of token reward that is received from contributing to a consensus mechanism. This also extends to staking by proxy or a token holder allowing a third party service to stake its tokens on its behalf.

[Comment that perhaps not controversial as it is a reward for services provided and therefore in line with concepts of wages and taxation of those]

Those participating in the consensus mechanism must report this income. However additional considerations must be made particularly regarding the value of the token at the time it was received and the deductions that may be afforded to the participant. Additionally, despite the coins being taxed as ordinary income on receipt their nature may change upon the disposal of the token. Depending on how the coins were used and the holders intentions when disposing the coins the holder may have to report the disposal as a CGT event or income.


An additional way a token holder may have come to own a cryptocurrency is by an “airdrop”. An airdrop occurs when the network increases token supply by increasing the balance of tokens held by existing token holders for nil consideration.

The ATO  takes the view that the monetary value of tokens received via airdrop are also to be taxed as ordinary income. This is distinct from chain splits (see here for further details).


Both cryptocurrency holders and tax advisers need to ascertain the source of token ownership. If tokens were received from an airdrop or as a reward for participating in a consensus mechanism then a tax liability may have been created at the time a token was received.

For more information on taxation of cryptocurrencies or for general tax advice, please contact:

Rob Warnock
Principal Lawyer
T: 03 5226 8541

Alexander Gulli
T: 03 5226 8573

Paul Gray

Principal - Harwood Andrews

Paul is a Principal at Harwood Andrews. He brings a commercial approach to the law from a broad set of experiences as a business owner, private legal advisor and in-house counsel, and having worked with management teams over many years. Paul is valued for distilling issues down to what is really important and being prepared to make a risk call based on judgement and experience.

Paul’s key areas of practice include:
- commercial contracts and advice;
- business and share capital structuring;
- sale and purchase of business;
- procurement and service arrangements;
- technology, intellectual property, data protection and start-ups;
- consumer law;
- corporate advisory, including , company secretarial and directors' duties, shareholder relations; and
- capital raising and financing requirements

Paul also manages Harwood Andrews’ corporate counsel advisory service, built on a decade of experience as a client and managing legal functions within one of Australia’s biggest corporations.

Paul believes that evolving how legal services are delivered can be a win-win for lawyers and their clients, particularly how on how technology impacts the legal profession, legal advice and the delivery of efficient legal services.

Paul’s professional commitments include:
- Member of the Law Institute of Victoria
- Member of the Law Institute of Victoria’s Technology and the Law Committee

Harwood Andrews