P2E gamers, minors not any safer from the tax man, says Koinly

Earning an income from play-to-earns is “complicated” without tax guidance, advises Australian crypto tax specialists.

Modern parents are going to need to keep an even closer eye on their kids’ gaming habits, as some of them may be accumulating a hefty tax bill, according to a crypto tax specialist.

Speaking to Cointelegraph during last week’s Australian Crypto Convention, Adam Saville-Brown, regional head of tax software firm Koinly said that many don’t realize that earnings from play-to-earn (P2E) games can be subject to tax consequences in the same way as crypto trading and investing. 

This is particularly true for play-to-earn blockchain games that offer in-game tokens that can be traded on exchanges and thus have real-world financial value.

“Parents were once worried about their kids’ playing games like GTA, with violence […] but parents now need to be aware of a whole new level […] tax complexities.”

Saville-Brown said he was approached during the convention by a father of a nine-year-old son, concerned that his boy was “making bank” from P2E games.

“The nine-year-old kid…is mining, staking, creating Youtube and TikTok videos to the point that his dad had to bring him here today because he’s generating so much income,” Saville-Brown recounted to Cointelegraph.

However, the treatment of P2E game earnings — at least in Australia — can be complex.

Koinly’s Head of Tax Danny Talwar explained that in Australia if one is playing a game to earn income — they are considered as “running a business” and could face a “complicated” tax situation, noting: 

“If you’re a professional gamer, it’s possible that you’re running a business, so you’d be treated under such rules.”

This is further complicated as the gamers could either be “playing these games as an investor” or “playing these games as a trader.”

According to the Australian Taxation Office, investors are subject to capital gains when they sell their assets, while traders doing the same thing would be seen as “trading stock in a business,” and thus any profits would be treated as ordinary income.

Talwar added that if users have “intentions to actually run as a business […] and have a business strategy,” then it will be treated as a business for tax purposes.

He brought up the popular P2E game Axie Infinity as an example of a game that might receive business treatment for tax purposes “as people use that game to earn an income.”

The tax expert advised that how one “should be treated from a tax perspective, all gets very complicated without guidance.”

He added that once you “throw in the other issue of minors under 18” playing games to earn an income and “creating in-game value, that has a marketplace with taxable consequences in doing so that people aren’t necessarily realizing.”

Related: Which countries are the worst for crypto taxation? New study lists top five

A similar situation could play out in the United States. Artav at Law, a U.S. Law Firm, states that complications arise because not “all P2E earnings” are the same.

There is a gray area as “what (and how) the game pays the player determines the type of taxes that particular player will owe […] is the income in the form of NFT? Tokens? Staking income? An airdrop?”

The U.S. law firm stated that whether it is called a token, cryptocurrency, or virtual currency, a native token is taxed like intangible property and is subject to capital gains tax, which the Internal Revenue Service (IRS) has had “a consistent position on this since at least 2014.”

However, if you earn crypto tokens “as part of a play-to-earn game, the value of such crypto is taxable as ordinary income,” it said. 

Related Posts

Crypto Biz: NYDIG stacks sats, Elon buys Twitter

Amid the bear market, positive signs of crypto adoption continue to emerge. Also, Elon Musk is finally moving ahead with plans to acquire Twitter. For all the…

Bitcoin price finally made a move, and fireworks are sure to follow

New crypto market trends are starting to emerge now that Bitcoin and equities markets move closer to make-or-break levels, which will determine the markets’ direction. This week,…

How The Cardano Foundation Supported Launch Of This Hybrid NFT Project

The Cardano Foundation announced its support for the launch of a new non-fungible token (NFT) collection that will bridge the physical world with the digital. Created by…

FTT Spiked to 3-Week High as Visa, FTX Revealed Crypto Debit Card

The financial services corporation – Visa – collaborated with the cryptocurrency exchange – FTX – to offer debit cards in 40 countries across the globe. The cards…

Pace Gallery Announces Latest Artblocks NFT Drop

New York-based contemporary gallery Pace Gallery has announced a new development in its partnership with Artblocks. Launching on October 10, 2022, the new project is an NFT…

When Will Terra Victims Be Compensated?

It has been almost five months since Terra collapsed, and UST users are yet to be compensated as promised. The Luna Foundation Guard announced today that victims…

Generated by Feedzy