For hapless crypto investors looking to turn lemons into lemonade, it turns out that digital assets lost in an exploit or hack could potentially be claimed as a tax loss, provided you live in the right country, experts told TBEN.
After the news that more than 8,000 Solana wallets had been compromised and an estimated $8 million dollars worth of crypto had been stolen as a result of a security breach in Web3 wallet provider Slope’s network, this may be some much-needed consolation.
The Solana hack and its potential tax implications: a thread https://t.co/JnYMrkB8qJ
— Crypto Tax Calculator (@CryptoTaxHQ) August 3, 2022
In correspondence with TBEN, Shane Brunette, the CEO of Australia-based CryptoTaxCalculator, confirmed that crypto lost through a hack or exploit may qualify as a loss for tax purposes in certain jurisdictions.
“This means that the original amount you paid for the asset (the assets) can be used to offset other capital gains.”
When asked if there are similar provisions in tax jurisdictions other than Australia, the country where the tax software provider is located, Brunette replied:
“Many countries have provision to allow for this type of tax deduction […] however, you should work closely with a local tax professional and ensure that you keep sufficient evidence of the loss.
Danny Talwar, Head of Tax at Koinly confirmed the same with TBEN, but stressed that Australia must prove that the lost cryptocurrency was under their control at the time it was stolen.
“To claim a loss of capital for hacked crypto, you must provide evidence to the Australian Tax Agency (ATO) that the crypto was lost and that it was under your control.”
Talwar also stated that it was critical for the IRS to have sufficient evidence that crypto cannot be retrieved, suggesting the use of blockchain discovery tools such as Etherscan and Solscan to legitimize evidence about the hacker’s destination address – which the evidence can also provide. delivering a large pool of hacked funds.
Under Australian tax law, any evidence of a hack must also include dates when private keys were obtained or lost and any associated wallet addresses.
Related: Solana Wallets ‘Compromised and Abandoned’ as Users Warned About Scam Solutions
Unfortunately for US-based crypto investors claiming hacked crypto as a tax loss is no longer possible due to the tax reform introduced in 2017, according to a blog post by CryptoTaxCalculator.
For those living in the UK and Canada, things are a bit more complicated, but a tax loss claim is possible if investors are willing to go through the unique steps outlined by each country’s tax office.
This year alone, approximately $2.6 billion in digital assets have been lost to hackers and nefarious actors, with cross-chain bridge attacks accounting for 69% of the total amount lost.