DeFi Taxes in Australia - Complete Guide 2025

Decentralized finance (DeFi) creates plenty of income opportunities for cryptocurrency users and investors. However, those opportunities also come with complex tax implications, including taxable income and capital gains.

While the IRS hasn’t issued tax guidance on every type of DeFi transaction, it still requires taxpayers to report income and gains from DeFi and crypto transactions. Since 2019, the ATO has been collecting data from crypto exchanges through its data-sharing program, which will continue through at least 2026. This means the chances of unreported crypto activity being detected has increased significantly. 

This guide will help you understand how the ATO treats cryptocurrency and DeFi, as well as the potential tax implications of some common types of DeFi transactions.

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What DeFi transactions are taxable?

The following are common DeFi activities that you must report as part of your annual tax return. Click on the links to read an in-depth guide about how each is taxed in Australia, or keep reading for a  overview of each with the key info you need to do your DeFi taxes in 2025:

• Staking
• Lending
• Borrowing
• Providing Liquidity
• Earning Token Rewards
• Earning Interest
• Bridging
• Wrapping
• Paying Gas Fees

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Does the ATO know about my DeFi trading?

The belief that crypto transactions are 'untraceable' and invisible to the ATO is a myth. Blockchain transactions are recorded on a public ledger, making it more visible than cash.

Some investors turn to crypto mixers or privacy protocols, but these don’t guarantee anonymity. In fact, many regulators worldwide – including Australia – can trace activity through these services. Using mixers isn't just risky, it could also raise red flags for tax evasion or money laundering, leading you straight into legal hot water.

On top of that, Australian crypto exchanges are required to comply with Know Your Customer (KYC) requirements for crypto exchanges. Through the ATO’s data-matching programs, exchanges and payment providers share customer details with the ATO. This makes it easier for the ATO to follow the money trail, even if it's been through a mixer.

In short, yes, the ATO likely knows about your crypto, or has the tools to find out. It's safer to assume the ATO has your name on a list and report your crypto transactions accordingly. Compliance is your best strategy when it comes to crypto tax.

How the ATO treats cryptocurrency and DeFi

The ATO’s guidance includes many common DeFi activities – including lending and borrowing, liquidity pools, interest and rewards, and wrapped tokens. Because the ATO treats crypto as property, not currency, DeFi transactions may either be subject to capital gains tax (CGT) or income tax, depending on the specific activity. Every time you spend, sell, or exchange cryptocurrency, you’re most likely triggering a taxable event.

As the ATO continues to expand its guidance of DeFi activities, the best approach is to stay informed and keep detailed records of all your transactions. Given the complexity and the evolving nature of DeFi, it's wise to seek advice from a tax professional who can help navigate the murky waters of DeFi taxation.

How different types of DeFi activities and transactions are taxed in Australia

The tax treatment of your DeFi activities varies depending on the type of activity and the exact type of transaction performed. So some activities – like staking – may consist of different transaction types, of which, each may receive different tax treatment. The easiest way to start calculating your DeFi taxes is to identify which transactions are treated as income, and which are treated as capital gains.

Check out our handy table summarising the tax treatment of each transaction type, or keep reading for a detailed explanation of how each DeFi activity is treated by the ATO.

DeFi transactions subject to income tax

DeFi transactions subject to capital gains tax

How token swaps are taxed in Australia

Swapping one cryptocurrency for another – whether through a centralised or decentralised exchange like Uniswap – is considered a capital gains tax (CGT) event by the ATO.

Example of how token swaps are taxed:

• You swap 1 ETH for 500 USDC on Uniswap.
• You originally paid $300 for the ETH, but at the time of the swap the ETH is worth $500 AUD so you report a capital gain of $200 AUD.

Tax treatment of the disposal

• When you swap crypto, you are disposing of the asset you hold 
• If the market value of the crypto you receive is higher than the one you disposed of, you’ll make a capital gain and may need to pay CGT
• If your assets depreciate by the time of the sale, you’ll have a capital loss. You could use that loss to offset some of your other crypto gains and reduce your overall tax liability.

Tax treatment of the gas fees

• Gas fees are also treated as a disposal of the coin used for gas
• You will owe capital gains tax if the coin increased in value since you first purchased it.
• You may also add gas fees to the cost base of the asset you disposed of, reducing your taxable gain.

How airdrops are taxed in Australia

An airdrop is when crypto tokens are distributed to users – sometimes for free and sometimes in exchange for completing certain tasks.

How are airdrops are taxed will depend on whether you received the airdrop as part of a token genesis event (TGE) or in subsequent airdrop rounds after the token had already launched.

Example of a taxable airdrop event: 

• You receive an airdrop of ENA in the 7th airdrop season, which is worth $100 at the time you receive it. You would report $100 as income, which is taxed at your ordinary income tax rate. 
• If you later sell your ETH, it's now worth $150, you’ll also pay capital gains taxes on your $50 profit — the difference between the value of the crypto received and its value when you sold it.
• If the ETH falls to $70 by the time you sell it, you can claim a $30 capital loss, which can be used to offset future gains. 

Tax treatment of receiving token genesis event (TGE) airdrops:

Airdrops that are received as part of a token genesis event are not subject to tax. Instead you receive the tokens with a cost basis of $0, which will be used to calculate your tax if you later dispose of the airdropped tokens you received.

Tax treatment of receiving follow up airdrop rounds:

The ATO treats airdrops as ordinary income when they are received after the TGE, and you’ll have to report it as income on your tax return.

Tax treatment of selling airdrop rewards:

• TGE airdrops: Capital gains tax applies. Your cost basis is $0.
• Follow-up airdrops: Capital gains tax applies. Your cost basis is the value of the tokens at the time you received them from the airdrop.

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How staking is taxed in Australia

Staking in the context of DeFi involves locking up a certain amount of cryptocurrency to participate in maintaining the operations of a blockchain system. It's akin to depositing money in a bank to earn interest; here, you're depositing crypto to earn rewards, often in the form of additional tokens.

Example of a taxable staking activity: 

Imagine you bought 5 ETH earlier this year for $10,000, and now they're worth $15,000. You decide to stake these 5 ETH in a DeFi protocol. This move is to earn staking rewards, enhance the security and efficiency of the blockchain network, or both.

Tax treatment of staking deposits: 

According to the ATO’s updated web guidance, depositing your ETH into a smart contract for staking is considered a disposal event, thereby triggering Capital Gains Tax (CGT). The capital gain would be the difference between the cost basis ($10,000) and the fair market value at the time of staking ($15,000), resulting in a $5,000 taxable gain. This approach assumes that by staking your ETH, you've effectively disposed of them and should thus report the transaction as a sale.

This is the default tax treatment on Crypto Tax Calculator, however, if you opt to go for an alternate stance, you can change the tax treatment for staking deposits under ‘Tax Settings’. It is highly recommended that you discuss your situation with a tax professional if you opt for an alternate tax treatment as it may put you at a higher risk of underreporting which can carry significant penalties.

Tax treatment of staking rewards: 

Once your staked ETH begins generating returns (be it token rewards, interest, or other incentives), the ATO will treat these crypto earnings as income comparable to earning interest in a traditional savings account.

You must report this income based on the market value of the tokens at the time they were received. If the value of these rewards decreases over time, you may be able to offset other capital gains in the current or future tax year, but losses cannot be used to offset income.

If you're not careful, this situation can lead to a scenario where the tax owed is greater than the current value of the rewards if their value has dropped significantly from when you claimed them to when you sold them.

Staying on top of your taxes throughout the year is critical in ensuring you don't get caught in this tax trap.

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How liquidity pools are taxed in Australia

Liquidity pools are a foundational component of many DeFi protocols, allowing users to pool their resources to facilitate trading, lending, and other activities. Users deposit their crypto assets into a shared pool, which is used to execute trades or loans on the platform. In return, they often receive fees or rewards based on their contribution.

Example of a taxable liquidity pool activity: 

Consider you've spent $2,000 to acquire 3 ETH and some stablecoins. Over time, the value of these assets increases to $2,500. You decide to contribute them to a liquidity pool on a DeFi platform to earn trading fees or other rewards.

Tax treatment of the LPing: 

According to the ATO’s DeFi guidance, depositing crypto assets into a liquidity pool is a taxable event. Here, you'd calculate your capital gain based on the difference between the cost basis ($2,000) and the market value at the time of the deposit ($2,500). This results in a capital gain of $500, which would be subject to taxes. This view assumes that by depositing your assets into the pool, you've effectively sold or disposed of them.

This is the default tax treatment on Crypto Tax Calculator, however, if you opt to go for an alternate stance, you can change the tax treatment under ‘Tax Settings’. It is highly recommended that you discuss your situation with a tax professional if you opt for an alternate tax treatment as it may put you at a higher risk of underreporting which can carry significant penalties.

Additional considerations for liquidity pools: 

When you withdraw your assets from the liquidity pool, the disposal of any LP or receipt tokens could trigger another capital gain or loss event. For instance, if the value of the withdrawn assets is less than the value at the time of depositing (say you receive assets worth $2,300 back from an initial $2,500), you would incur a capital loss of $200.

Furthermore, any additional token rewards or interest earned from the liquidity pool are viewed as income at the market value at the time of receipt. This income must be reported and will be taxable. Later, when you sell these reward tokens, you'll also need to account for any capital gain or loss from the sale.

Using the example, if you earned $100 worth of tokens and later sold them for $150, you'd report $100 of income and a capital gain of $50.

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How DeFi lending and borrowing is taxed in Australia

DeFi allows you to lend and borrow crypto assets in a matter of seconds from anyone, anywhere in the world, in an entirely peer-to-peer and trustless manner. Trustless lending and borrowing is one of DeFi's major financial breakthroughs; however, if you engage in these activities, you must beware of the potential tax consequences.

DeFi loans have different tax implications for the borrower and the lender. They will vary depending on the exact platforms you use and how you manage your funds. Let’s take a look at some of the more common scenarios.

Lending

Lending your crypto through a DeFi platform (such as Aave) can result in multiple taxable events under Australian law. When you deposit assets into a smart contract to be loaned out on your behalf, you may receive: 

• Interest payments. Treated as ordinary income at the time received, whether they’re paid in kind (using the same asset you loaned), using a stablecoin, or using the platform's own token.
• Capital gains. If you later sell, swap, or spend the rewards, you’ll pay capital gains tax (CGT) on any profits you’ve made since you received them.

Liquidity pool tokens: 

Some lending platforms issue a ‘receipt’ or Liquidity Pool Token (LPT) in return for your deposit. The ATO generally considers this a crypto-to-crypto swap, meaning both the deposit and withdrawal of your funds can trigger a taxable CGT event

Example of a taxable lending activity: 

You purchased 1ETH for $20 several years ago. Today, 1ETH is worth $100. You deposit it into a lending protocol and receive 5 receiptETH tokens in return. Since the ATO treats crypto-to-crypto trades as taxable, exchanging ETH for receiptETH is seen as a disposal of your ETH. You would need to report an $80 capital gain at the time of deposit. 

Note: Crypto Tax Calculator applies this default tax treatment but you can change the tax treatment under ‘Tax Settings’. However, choosing an alternate stance may increase your risk of underreporting, which can carry significant penalties. Always refer to a tax professional for advice before applying a non-typical tax treatment. 

Borrowing crypto

If you use your crypto as collateral to borrow against, the act of borrowing itself is not considered a taxable event. The funds (or tokens) received from a loan are a debt obligation, not income since you will eventually need to repay them. Under normal circumstances, receiving tokens as part of a borrowing agreement does not create a tax liability.

Selling borrowed crypto

If you borrow crypto and go on to sell it, you will trigger a capital gains tax (CGT) event. In this case, you need to calculate your gain or loss, based on the difference between the cost basis of the borrowed asset and the price you sold it for. The cost basis is the fair market value (FMV) in AUD at the time you borrowed the asset.

DeFi Borrowing – Taxable events in Australia

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📌 DeFi Lending – Taxable events in Australia

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How yield farming is taxed

Yield farming is a DeFi strategy where users stake or lend their crypto assets to earn rewards. It often involves moving funds between liquidity pools and protocols to maximise returns.

Because yield farming combines elements of staking and liquidity provision, the tax implications follow similar rules. In most cases: 

• Rewards are treated as ordinary income when received. 
• Deposits and withdrawals may trigger capital gains tax (CGT) if the ATO considers them to be crypto-to-crypto swaps. 

Event 1: The deposit 

You acquired 100 ETH for $10,000. Later, when ETH is now worth $20,000, you decide to venture into yield farming and deposit the 100 ETH into a smart contract.

Tax treatment:

The ATO’s guidance suggests that the deposit of your ETH is a taxable event, as you are disposing of ETH in exchange for receipt tokens (e.g. LP tokens). You'd recognize a capital gain of $10,000 (the difference between the $20,000 value at deposit and the $10,000 original cost) and report it on your tax return. 

Note: Crypto Tax Calculator applies this tax treatment by default. If you opt to go for an alternate stance, you can change the tax treatment for staking deposits under ‘Tax Settings’. Non-standard tax treatments carry a higher risk of under reporting, so always consult a tax professional before you apply any alternate treatment. 

Event 2: Receiving rewards 

After a month of participation, you receive 1 TOKEN as a reward, valued at $1,000 at the time of receipt.

Tax treatment:

The $1,000 is treated as ordinary income. You'd report this as income immediately, taxed according to your income bracket.

Event 3: Selling the rewards 

At some point after claiming, you decide to sell the TOKEN. When you sell, the TOKEN’s value has increased to $1,500.

Tax treatment:

You make a capital gain of $500 (sale price of $1,500 - cost base of $1,000). This is reported as  a CGT event and taxed at capital gains rates.

How wrapping tokens is taxed

Wrapping tokens is a common DeFi process that makes cryptocurrencies compatible with smart contracts or decentralised applications. For example, Ethereum's native token (ETH) can be wrapped into WETH, an ERC-20 token, so it can interact with protocols across Ethereum's DeFi ecosystem.

Example of a taxable wrapping activity: 

You hold ETH and want to use a DeFi protocol on the Ethereum network. Since smart contracts on Ethereum only accept the ERC-20 version of ETH, you wrap your ETH into WETH before depositing.

Tax treatment of wrapping:

Wrapping ETH into WETH may be considered a crypto-to-crypto swap, which the ATO generally considers to be a taxable event. The conversion of ETH to WETH would be considered a disposal of the original asset (ETH) and the acquisition of a new asset (WETH). Any capital gain or loss would be based on the difference  between your ETH's cost base and the market value at the time of conversion.

Note: In Crypto Tax Calculator, the default setting treats wrapping as a taxable trade. You can change the tax treatment under  ‘Tax Settings’ to mark wrapping as a non-taxable event. If you choose this alternate stance, it is recommended that you discuss your situation with a tax professional as it may put you at a higher risk of underreporting.

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How bridging tokens is taxed

Bridging tokens involves transferring assets from one blockchain to another so they can be used across different protocols. A bridge typically locks the tokens on the original blockchain and issues a corresponding ‘wrapped’ or representative version on the target blockchain.

Example of a bridging event:

You own Bitcoin (BTC) and want to use a DeFi protocol on the Ethereum network. Since BTC doesn't run natively on Ethereum, you use a bridge (like Ren) that locks your BTC and issues Wrapped Bitcoin (wBTC) on Ethereum, allowing you to participate in DeFi on the network. 

Tax Treatment 

• Conservative view: 
  
  • Bridging may be seen as a crypto-to-crypto swap, which the ATO generally considers a taxable event. From this perspective, you are disposing of your original BTC and acquiring a new, different asset (wBTC). A capital gain or loss would be calculated based on the difference between your BTC’s cost base and its market value at the time of  bridging.
• Alternative view:
  
  • Since the bridged asset is equal with no market price difference, it is not intended to be a disposal and should not trigger any tax. 

In Crypto Tax Calculator: 

• By default, bridging events are treated as non-taxable.
• If you want to take a conservative approach, you can manually mark them as taxable. It is highly recommended that you discuss your situation with a tax professional to know which treatment is most suitable for your situation.

How gas fees are taxed

In DeFi, almost every transaction you make comes with a network fee known as a gas fee. These fees – often paid in ETH or another token – can fluctuate significantly depending on network traffic.

From an ATO perspective, gas fees aren’t treated like ordinary trading fees since you’re disposing of crypto to pay them. This means gas fees can incur a capital gain or loss, while impacting your cost base or proceeds. 

The easiest way to get your head around gas fees and taxes is by breaking it down by transaction type:

How gas is taxed when making a transfer 

Any time you use crypto (like ETH) to pay for gas, the ATO treats it as a disposal which is subject to capital gains tax. You’ll need to figure out the capital gain or loss on the ETH used.

Example:

• You bought 0.01 ETH for $20. 
• Later, you use that 0.01 ETH to pay a gas fee worth $35 when transferring 500USDC between wallets. 
• Since you originally purchased the ETH for $20, but at the time you made the transfer it was worth $35, you have to pay capital gains tax on the $15 gain. 

How gas is taxed when buying crypto 

When you buy crypto and pay a gas fee in addition to the token price, the gas fee is added to your cost base.

• This increases the cost base of your newly acquired asset, which may reduce your taxable capital gains when you sell later on. 
• You’ll also need to figure out the gain or loss on the crypto you used to pay the gas fee at the time of disposal. 

Example:

• You purchase $1000 worth of USDC via Uniswap on Ethereum and pay a $8 gas fee, plus a $2 platform fee, both of which are charged in ETH.
• Your total cost base is $1,008 ($1,000 + $8 + $2) 
• If the ETH you used for the gas fee had a cost base of $6, you’ll need to declare a $2 capital gain. 

How gas is taxed when you make a sale

Gas fees incurred when you sell crypto are typically deducted from your capital proceeds, reducing the taxable gain. Similar to purchases, you’ll also need to calculate the gain or loss from disposing of the crypto used to pay for the gas. 

Example:

• You sell $1,200 worth of ETH
• The gas fee is $20 and the Uniswap platform fee is $5. Both are in ETH
• Your capital proceeds are reduced to $1,175 ($1,200 - $25) 
• If the ETH used to cover the $20 gas had a cost base of $15, you’ll also need to report a $5 capital gain

Learn more: Read our guide on Crypto Tax in Australia for a full explanation of how capital gains and income tax are applied to cryptocurrency, and learn how you can use losses or long-term holding to potentially reduce your overall tax liability.

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How to report DeFi transactions to the ATO

You must report all of your DeFi transactions when you file your annual tax return with the ATO.

Depending on the type of activity, your transactions may be taxed as either ordinary income or capital gains. Some transactions can even trigger both.

Reporting DeFi income

Many types of DeFi transactions are treated as ordinary income by the ATO. The value of these tokens must be reported as income in Australian dollars at the time you receive them. DeFi transactions that be taxed as income include:

• Staking
• Lending
• Liquidity pools
• Yield farming
• Airdrops

You’ll report your DeFi income on myTax under ‘Personalise return’ then select ‘You had other income not listed above (including employee share schemes)’.

Reporting DeFi capital gains

Other DeFi transactions could result in a capital gains tax (CGT) event instead of income. A CGT event typically occurs when you dispose of an asset, such as selling, swapping, or using it in a protocol. Examples include:

• Liquidity pools
• Yield farming
• Swaps and trades
• Wrapping tokens
• Bridging tokens
• Gas fees

In myTax, to report your capital gains or losses go to ‘Personalise return’.  If you have capital gains or losses from crypto activity, select ‘Capital gains or losses that are not from a managed fund distribution’.

Keep in mind that short-term capital gains (assets held for less than a year) are taxed differently to long-term capital gains (assets held for over a year). Short term gains are taxed at your ordinary income tax rate, while long-term capital gains may be eligible to receive a 50% CGT discount. If eligible, this means that only half of your long-term gains will be taxed.

To help reduce your gains, capital losses can be used to offset capital gains, and unused losses can be carried forward to future years.

Stay Compliant and Avoid Audits

Accurate records are your best defence against audits and tax headaches. Every DeFi transaction, no matter how minor it seems, leaves a digital trail that the ATO can trace. If you don’t stay on top of it, tax season can quickly become a mess – and increase your risk of an audit.

DeFi activity adds extra complexity. Transactions span multiple wallets and chains, with staking, wrapping, and liquidity pooling each recorded differently across block explorers. Manually piecing this together is time-consuming and error-prone.

That’s where Crypto Tax Calculator can help. It handles complex DeFi transactions automatically and seamlessly importing your on-chain transactions, saving you from spreadsheets and endless block explorer searches. In just a few clicks you’ll get an ATO-compliant tax report that can be uploaded on myTax or given to your accountant.

DeFi taxation is a complex and continuously evolving area. Consulting with a tax professional is always a wise decision if you need clarification on something.

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Sources

• Decentralised finance and wrapping crypto, Australian Government: Australian Taxation Office, 2025, https://www.ato.gov.au/individuals-and-families/investments-and-assets/crypto-asset-investments/decentralised-finance-and-wrapping-crypto 
• What is 'DeFi', and how might the blockchain tech behind bitcoin cost bankers their jobs?, ABC News, 2021, https://www.abc.net.au/news/2021-06-24/defi-cryptocurrency-ethereum-bitcoin-blockchain/100238888 
• Traditional and DeFi converge in Australia amid crypto adoption push, AI Invest, 2025, https://www.ainvest.com/news/traditional-defi-converge-australia-crypto-adoption-push-250