P2E gamers, minors not safer for the tax authorities, says Koinly

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Modern parents will need to keep an even closer eye on their kids’ gambling habits, as some of them may be racking up a hefty tax bill, according to a crypto tax specialist.

Adam Saville-Brown, regional head of tax software company Koinly, spoke to TBEN at last week’s Australian Crypto Convention and said many don’t realize that earnings from play-to-earn (P2E) games work in the same way as crypto trading and investing. .

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

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

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

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“The nine-year-old boy… is mining, staking, making YouTube and TikTok videos to the point that his father had to bring him here today because he generates so much income,” Saville-Brown told TBEN.

However, the treatment of P2E gaming revenue – at least in Australia – can be complex.

Koinly’s head of tax Danny Talwar explained that if someone in Australia plays a game to earn income, they are considered “running a business” and can face a “complicated” tax situation, noting:

“If you’re a professional gamer, it’s possible that you run a business, so you’ll be treated according to such rules.”

This is further complicated because the gamers can either “play these games as an investor” or “play these games as a trader”.

According to the Australian tax office, investors are subject to capital gains when they sell their assets, while traders doing the same would be seen as ‘trading shares in a company’, and so any gains would be treated as ordinary income.

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Talwar added that if users have “intent to actually operate 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 could receive business treatment for tax purposes “because people use that game to earn an income.”

The tax expert advised that how to treat someone “from a tax point of view, it all gets very complicated without guidance”.

He added that if you “throw in the other issue of minors under 18” by playing games to earn an income and “create in-game value, that has a marketplace with taxable consequences that people turn to.” not necessarily realize it.”

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A similar situation could arise in the United States. Artav at Law, a US law firm, argues that complications arise because not “all P2E revenues” are created equal.

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There is a gray area if “what (and how) the game pays the player determines the type of taxes a particular player owes […] is the income in the form of NFT? Coins? Deploy income? An airmail?”

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

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