Tax treatment of non-fungible tokens

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The tax treatment of non-fungible tokens follows the same principles as cryptocurrencies.

A non-fungible token (NFT) is a unit of data stored on a digital ledger. NFTs are unique and therefore are not interchangeable.

You can use an NFT to represent an ownership interest in any tangible or intangible asset, even where you store the asset outside the digital ledger.

The tax treatment of an NFT will depend on your use and your reasons for holding and transacting with the NFT.

You may pay tax on the NFT:

  • under the capital gains tax (CGT) regime
  • on revenue account as trading stock
  • as part of a business or profit-making scheme
  • or depending on the terms of the NFT smart contract and the rights it grants, a combination of the above.

As with any other cryptocurrency an NFT could be held for personal use.

Example: NFT as part of a business

Kim, a professional artist, paints a portrait of a famous Australian and decides to create ten NFTs each of which provides the right to one, four-hour, exclusive viewing of the portrait in a private viewing room in Kim’s gallery each year for up to 20 people. On subsequent transfers of the NFTs to new owners, the smart contract allocates part of the proceeds to Kim as a commission.

Kim retains all other rights associated with the painting.

The proceeds of the initial sale would be assessable as business income to Kim. While Kim remained in business any commissions received would also be business income. If Kim ceased carrying on the business the commissions would still be assessable as ordinary income to Kim.

The treatment in the hands of the owners would depend on how they made use of the NFT.

Example: personal use of NFT

Jo, who is related to the subject of the portrait from the example above. She uses the private viewing of the portrait to celebrate their birthday with close family and friends every year.

For Jo the NFT would be a personal use asset.

Example: NFT as a capital asset of a business

Osman runs a tour business and plans to use the private viewing of the portrait as part of an annual Art tour of the region.

While the NFT would be a capital asset of the business it would not be a personal use asset.