• Kieran Powell

How are Cryptocurrency Staking rewards and airdrops treated for tax?

Proof of Stake is a form of 'consensus mechanism' that requires forgers (similar to miners) to hold units of a cryptocurrency so they can validate transactions and create new blocks. Forgers participate in consensus by staking their existing tokens.


A forger who is selected to forge a new block is rewarded with additional tokens when the new block has been created. The additional tokens are received from holding the original tokens. The money value of those additional tokens is ordinary income of the forger at the time they are derived. Think of staking as if you are earning interest from the bank. The value of staking “interest” is calculated at the time of harvesting.


You need to be careful with which tokens you are staking as if the price fluctuates down with an increased supply you may end up in the position of receiving income on a revenue stream which is taxable and a CGT event which is negative. If you have no other CGT items to offset this against, this loss is quarantined for the future.


Other consensus mechanisms that reward existing token holders for their role in maintaining the network will have the same tax outcomes. This would include rewards derived through Proof of Authority and Proof of Credit mechanisms by Validators, Agent Nodes, Guardian Nodes, Premium Stakers and other entities performing comparable roles.

Token holders who participate in 'proxy staking' or who vote their tokens in delegated consensus mechanisms, and receive a reward by doing so, also derive ordinary income equal to the money value of the tokens they receive.


Some projects 'airdrop' new tokens to existing token holders as a way of increasing the supply of tokens (for example, Pundi X and Tron). The money value of an established token received through an airdrop is ordinary income of the recipient at the time it is derived.

Once you have acquired your new tokens this forms their cost base. Essentially when your received these this is receiving as ordinary income your revenue tax stream. Then when it is sold later the capital gains is the sale price less the cost base deemed from staking (this is on your capital stream of income).Proof of Stake is a form of 'consensus mechanism' that requires forgers (similar to miners) to hold units of a cryptocurrency so they can validate transactions and create new blocks. Forgers participate in consensus by staking their existing tokens.

A forger who is selected to forge a new block is rewarded with additional tokens when the new block has been created. The additional tokens are received from holding the original tokens. The money value of those additional tokens is ordinary income of the forger at the time they are derived. Think of staking as if you are earning interest from the bank. The value of staking “interest” is calculated at the time of harvesting.


You need to be careful with which tokens you are staking as if the price fluctuates down with an increased supply you may end up in the position of receiving income on a revenue stream which is taxable and a CGT event which is negative. If you have no other CGT items to offset this against, this loss is quarantined for the future.


Other consensus mechanisms that reward existing token holders for their role in maintaining the network will have the same tax outcomes. This would include rewards derived through Proof of Authority and Proof of Credit mechanisms by Validators, Agent Nodes, Guardian Nodes, Premium Stakers and other entities performing comparable roles.


Token holders who participate in 'proxy staking' or who vote their tokens in delegated consensus mechanisms, and receive a reward by doing so, also derive ordinary income equal to the money value of the tokens they receive.


Some projects 'airdrop' new tokens to existing token holders as a way of increasing the supply of tokens (for example, Pundi X and Tron). The money value of an established token received through an airdrop is ordinary income of the recipient at the time it is derived.


Once you have acquired your new tokens this forms their cost base. Essentially when your received these this is receiving as ordinary income your revenue tax stream. Then when it is sold later the capital gains is the sale price less the cost base deemed from staking (this is on your capital stream of income).


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This article is written by Kieran Powell who is a registered tax agent and avid crypto enthusiast.






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