What is a crypto to crypto swap
Crypto to crypto swaps allow investors to conveniently exchange one crypto asset for another crypto asset without using a fiat currency such as AUD.
Barter transaction
A crypto to crypto swap is considered to be a barter transaction for tax purposes, where one piece of property is exchange for another piece of property.
Cryptocurrency swaps can take place on a cryptocurrency exchange that supports a direct crypto to crypto swap feature, or they can also occur on-chain through DeFi swap protocols.
When two tokens are swapped on an exchange or swap protocol, there is always an assumption that they exchange hands at a fair market price. The fair market price is based on the relative market demand between the two crypto assets being swapped.
Why use crypto swaps
If crypto swaps did not exist, then you would instead need to execute two trades:
- an initial sale of crypto for fiat
- a subsequent purchase of crypto using the fiat.
When compared to the alternative, a direct crypto to crypto swap has the following advantages:
- Convenience, as only a single swap is required.
- Lower fees, as brokerage is only incurred on a single transaction.
Do you have to pay taxes when you swap crypto?
You are legally required to pay tax in Australia when you swap crypto for another crypto.
Why are crypto swaps taxable?
The ATO considers crypto to be a form of property or an asset for tax purposes. This means that any capital gains made from swapping crypto is taxable and must be reported as assessable income.
When you swap one crypto asset for another crypto asset, you are seen as disposing one CGT asset and acquiring another CGT asset.
When swapping crypto, a CGT event occurs for the original CGT asset that you got rid of.
That means when you swap crypto, there’s tax to consider.
How to calculate tax on crypto swaps
Let’s look at an example of how swapping crypto is taxable.
🔁 Crypto swap example
John is an investor who purchases 20 ABC for $10,000 on 3 July 2021.
John wants to swap ABC for XYZ on a cryptocurrency exchange that supports the swap feature.
John selects the crypto-to-crypto swap option on the exchange and swaps his 20 ABC for 50 XYZ on 20 September 2021. The market value at the time of the swap was $15,000
John will have a tax event from swapping his 20 ABC for 50 XYZ on 20 September 2021, and must calculate the resulting gain or loss from disposing his ABC token.
The following tax events occurred:
- There is a disposal of 20 ABC, which is a taxable CGT event. The capital gain can be calculated and must be declared on his tax return:
Proceeds from the disposal = $15,000
Original cost base = $10,000
Capital gain = $15,000 - $10,000 = $5,000
- There is an acquisition of 50 XYZ, with a cost base of $15,000.
John will need to keep a record of the cost base of his 50 XYZ, so he can determine the capital gain or loss when it is sold in the future.
Until the 50 XYZ is actually sold or disposed, it does not need to be declared on his tax return.
Rebases are not taxable
There are certain crypto swaps that are not taxable, where the asset is still the same, and has not actually changed.
This can occur for crypto projects where a ticker symbol may have been updated, the quantity has been redenominated, or possibly when a token is migrated to a new contract.
Where a crypto swap is not taxable, it is referred to as a rebase. That’s because the cost base of the original asset is carried over to the new asset, and no CGT event occurs.
💡 Antshares rebrand to NEO
Although the ATO has not provided guidance on rebases, one possible example is the rebranding of Antshares (ANS) to NEO (NEO).
The rebranding of ANS to NEO occurred in June 2017. Antshares originally started in 2014 but did not receive a lot of traction, so the project upgraded its blockchain nodes, technical documents, official site, exchange name and made the transition from Antshares to NEO.
Use crypto tax software to do ATO compliant tax calculations
It’s important to have reliable crypto tax software for recording your crypto swap transactions and for calculating your tax outcomes.
Crypto tax software, like Syla, can help you accurate calculate you tax outcomes:
- record your crypto to crypto swaps
- accurately apply AUD market valuations compliant to Australian valuation standards
- calculate capital gains and losses
- use advanced parcel matching strategies to minimise the resulting tax
Syla intelligently applies the correct tax classifications to deliver the best tax outcomes for investors, ensuring you are paying the lowest crypto tax.
