Why you can trust this guide
There is not one clear rule that dictates how all of your cryptocurrency transactions should be taxed. However, the ATO regularly releases guidelines to help you understand your obligations.
Our team of experts at Crypto Tax Calculator reviewed these guidelines to help produce this comprehensive guide to DeFi taxes in Australia.
Should you consult a professional? The tax treatment of lending and borrowing in the DeFi space is nuanced and can vary widely based on the user's activities and the ATO's interpretation of these activities. You must carefully consider your own situation, keep detailed records, and consult with a tax professional if you think you need help. Your tax agent can easily connect to Crypto Tax Calculator and review your transactions for you through our specialised portal for accountants and tax agents.
Using specialised tax software like Crypto Tax Calculator to calculate your DeFi taxes is much easier than doing it manually.
Crypto Tax Calculator will automatically categorise your DeFi transactions, meaning that it can identify liquidity pools, bridging, gas fees, and staking in addition to all of your buy-and-sell activity.
It will then produce an ATO-compliant tax report that can be exported in multiple formats and shared directly with your accountant or tax agent.
Here’s how to get started:
Connect all of your exchanges, wallets, and platforms to import your transaction history. Include all of your transactions and trading history beyond just your DeFi activity to accurately establish the cost-basis of assets and ensure you receive an accurate tax report.
While Crypto Tax Calculator does the hard work for you, it may flag some missing data or errors, which you will need to review to ensure accuracy.
Generate a comprehensive ATO-compliant tax report ready to upload to myTax or hand to your tax agent.
If you're new to Crypto Tax Calculator, begin with our Getting Started Guide for an overview of how the platform works.
In most cases of buying and selling cryptocurrency as a retail investor, you are participating in investing rather than trading. The two are treated differently for tax purposes.
The key difference between investing and trading – along with the different tax treatments, is how losses generated in the crypto-activity can be used.
In their guidance, HMRC have explicitly stated that they would expect it to be exceedingly rare that any crypto-activity constituting buying & selling crypto would be classified as “trading”.
If you are uncertain, speak to a tax advisor as there are always exceptions, including but not limited to, developing tokens and large scale mining.
You can be liable for both capital gains and income tax depending on the type of cryptocurrency transaction, and your individual circumstances. For example, you might need to pay capital gains on profits from buying and selling cryptocurrency, or pay income tax on interest earned when holding crypto.
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The complete guide that explains how to do your DeFi taxes in Australia based on official ATO guidance and reviewed by Australian tax experts.
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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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:
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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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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 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:
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
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.
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.
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.
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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:
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.
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.
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.
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.
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.
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.
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.
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
In Crypto Tax Calculator:
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:
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:
When you buy crypto and pay a gas fee in addition to the token price, the gas fee is added to your cost base.
Example:
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:
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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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.
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:
You’ll report your DeFi income on myTax under ‘Personalise return’ then select ‘You had other income not listed above (including employee share schemes)’.
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:
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.
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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The information provided on this website is general in nature and is not tax, accounting or legal advice. It has been prepared without taking into account your objectives, financial situation or needs. Before acting on this information, you should consider the appropriateness of the information having regard to your own objectives, financial situation and needs and seek professional advice. Crypto Tax Calculator disclaims all and any guarantees, undertakings and warranties, expressed or implied, and is not liable for any loss or damage whatsoever (including human or computer error, negligent or otherwise, or incidental or Consequential Loss or damage) arising out of, or in connection with, any use or reliance on the information or advice in this website. The user must accept sole responsibility associated with the use of the material on this site, irrespective of the purpose for which such use or results are applied. The information in this website is no substitute for specialist advice.
James Edwards has been active in the cryptocurrency industry for over 10 years. He is an avid user of DeFi and believes in the promise of a user-owned and operated web.
His expertise as a cryptocurrency journalist has seen him contribute to publications such as Nasdaq, CoinMarketCap and CoinTelegraph.
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