Modern parents are going to have to be even more vigilant about what games their kids are playing, as some of them may be racking up a big tax bill, according to a cryptocurrency tax specialist.
Speaking to Cointelegraph during the Australian Crypto Convention last week, Adam Saville-Brown, regional head of tax software firm Koinly, said many don’t realize that earnings from play-to-earn (P2E) games can be subject to tax liabilities in the same way as gaming. trading and investing in cryptocurrencies.
This is especially true of blockchain, or “play-to-earn” games, which offer tokens that can be sold on exchanges and thus have real-world financial value.
“Parents used to worry about their kids playing games like GTA, because of the violence […] but now parents have to be aware of a whole new level […] of tax complexity.
Saville-Brown said he was approached during the convention by the father of a nine-year-old boy, concerned his son was “making good money” playing P2E games.
“The nine-year-old boy…is mining, staking, creating videos on YouTube and TikTok to the point that his father had to bring him in today because he’s making good money,” Saville-Brown recounted to Cointelegraph.
However, the treatment of earnings from P2E games (at least in Australia) can be complex.
Danny Talwar, head of tax at Koinly, explained that in Australia, if you play a game for income, you are considered to be “running a business” and could face a “complicated” tax situation, pointing out:
“If you’re a professional gamer, you may be running a business, so you would be treated under those standards.”
This is further complicated, as players could be “playing these games as investors” either “playing these games as traders.”
According to the Australian Revenue Office, investors are subject to capital gains when they sell their assets, while traders doing the same would be considered “share sellers in a business”, and therefore any profit would be treated as ordinary income. .
Talwar added that if users have “intentions to really operate as a company […] and have a business strategy”, then it will be treated as a company for tax purposes.
He mentioned the popular P2E game, Axie Infinity, as an example of a game that could be treated as a business for tax purposes. “since people use that game to generate income.”
The tax expert advised that how should “Dealing from a fiscal point of view, everything becomes very complicated without guidance.”
He added that once “the other issue of those under 18 years of age” who gamble for income and “Creating value in the game, that has a market with tax consequences of doing that that people aren’t necessarily realizing.”
A similar situation could occur in the United States. Artav at Law, an American law firm, claims that the complications arise because “not all P2E earnings” are created equal.
There is a loophole, because “What the game pays the player (and how) determines the type of taxes that particular player will owe […] Is the proceeds in the form of NFTs? tokens? Staking rewards? In the form of an airdrop?
The American law firm stated that, regardless of whether it is called a token, cryptocurrency or virtual currency, a native token is taxed as an intangible asset and is subject to capital gains tax, something that the Internal Revenue Service (IRS) has Dyed “a consistent position on this since at least 2014.”
However, if crypto tokens are won “as part of a play-to-earn game, the value of said cryptocurrencies is taxable as ordinary income,” said.
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