Staking, wrapped tokens and DeFi: the ATO's tax rules explained

DeFi moves faster than tax law, so the rules for staking, wrapped tokens and DeFi in Australia live mostly in ATO guidance rather than legislation. That guidance is still what the ATO applies when it looks at your return, and for FY 2025-26 the positions are clear enough to plan around. Here's what they say.

Staking rewards: income first, CGT later

Staking rewards are ordinary income at their AUD market value on the day you receive them. That's declared in the year you earn it, whether or not you ever sell. The rewarded coins then start their own cost base (the value you declared) and their own 12-month clock, so a later sale is a separate CGT event.

Two practical consequences:

• You can owe tax on rewards you still hold, even if their price has since fallen. Selling at a loss later creates a capital loss, which offsets capital gains but not the income you already declared.
• Frequent reward payouts mean many small income events. Each needs an AUD value at receipt.

The same income-at-receipt treatment applies to most earned crypto; see Acquiring crypto: airdrops, staking, gifts and more.

Wrapped tokens: wrapping is a disposal

The ATO's position is that wrapping or unwrapping a token is a CGT event: you exchange one crypto asset for another, even when the exchange is 1:1 and instant. ETH to WETH is a disposal of the ETH at its market value, and the WETH starts fresh for both cost base and the 50% discount clock.

There's no rollover relief here. If your ETH had appreciated since you bought it, wrapping crystallises that gain.

DeFi lending, borrowing and liquidity pools

The key question in the ATO's DeFi guidance is whether your tokens change hands. Where a protocol takes your tokens and gives you something different back (a receipt token, an LP token, an interest-bearing balance), the ATO's view is that you've disposed of the originals:

• Depositing into a lending protocol or liquidity pool: likely a disposal of what you put in.
• Withdrawing: a disposal of the receipt or LP token you hand back.
• Rewards and interest along the way: ordinary income at AUD value when received.

This surprises a lot of people because economically it feels like a loan, not a sale. On the ATO's published view, the tax outcome follows the tokens, not the economics. A busy DeFi wallet can rack up hundreds of CGT events in a year without a single "sell" button being pressed.

What this means for your return

• Track everything at the time it happens. Every wrap, deposit, withdrawal and reward needs an AUD value at the moment of the transaction.
• Losses count too. Disposals into and out of DeFi realise losses as well as gains, and realised losses offset gains this year or carry forward. See Disposing of crypto for how losses and the 50% discount interact.
• Guidance can move. These positions come from ATO web guidance rather than black-letter law, and crypto tax settings remain under review in Australia. What's above is the position to file on for FY 2025-26.

For a walk-through of how each everyday DeFi action is treated, see the companion piece Using crypto: DeFi, wrapped tokens and personal use.

How does Summ handle these rules?

Summ applies the ATO's treatment automatically: staking rewards are valued and categorised as income on receipt, wraps and pool movements are picked up as disposals with AUD values at the time, and the whole lot flows into your myTax figures. If you'd rather categorise an edge case differently on advice, you can override any transaction.

FAQ

How does Summ handle staking rewards that arrive daily? Each payout is valued in AUD at receipt and totalled into your income figure automatically, so hundreds of small rewards don't mean hundreds of manual entries.

I only wrapped ETH to use a dApp. Do I really need to report it? On the ATO's published view, yes, it's a disposal at market value. The gain or loss depends on your ETH cost base at the time.

Is any of this final law? The positions come from ATO guidance, and the broader tax treatment of crypto remains under review. Filing consistently with the ATO's published view is the low-risk path, and good records mean you can adjust if the settings change.

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This article is general information, not tax advice. For your specific situation, speak to a registered tax agent.