CRYPTO TAX & REGULATIONS

Tax Implications of Staking and Yield Farming in Australia

Crypto staking and yield farming have become two of the most popular ways for Australian investors to put their crypto assets to work and generate returns. The appeal is obvious: rather than simply holding assets and waiting for price appreciation, you can earn ongoing rewards on top of your existing holdings.

What far fewer investors fully appreciate is the tax treatment that applies to those rewards. The ATO has a clear position on income earned through staking and yield farming, and it is more comprehensive and more immediate than most people expect. Understanding it before you earn is considerably easier than untangling it after the fact.

This resource covers exactly how the ATO treats staking and yield farming rewards, what records you need to keep, and the specific tax events you need to account for across both activities.

The ATO's Overarching Position

The ATO treats cryptocurrency received through staking and yield farming as ordinary income in most circumstances. This means the AUD value of the rewards at the time they are received is assessable income in the financial year they are received, regardless of whether you sell them, hold them, or reinvest them.

This is a critical point that consistently catches investors off guard. You don’t need to sell your rewards to have a tax obligation. Simply receiving them creates a taxable income event. If you receive $500 AUD worth of staking rewards in a financial year and never sell them, you still owe income tax on $500 AUD of assessable income for that year.

The broader tax framework that governs all Australian crypto activity is covered in our resources on cryptocurrency tax Australia, ATO crypto rules Australia, and ATO crypto reporting. This resource focuses specifically on the staking and yield farming dimensions of those obligations.

Staking Rewards: How They Are Taxed

Crypto staking involves locking your tokens to support a blockchain network’s proof-of-stake consensus mechanism or within a protocol, in exchange for periodic reward distributions. From an ATO perspective, those rewards are treated as follows.

At the point of receipt: The AUD value of the staking rewards received is assessable as ordinary income. You need to record the AUD value of each reward distribution at the time it is received, not at the time you eventually sell the rewards. This requires knowing the market price of the rewarded token at the precise time each distribution occurs.

At the point of disposal: When you eventually sell, trade, or otherwise dispose of your staking rewards, a second tax event occurs. At this point, capital gains tax applies to any gain or loss between the value at which you recorded the rewards as income, which becomes your cost base, and the value at which you dispose of them.

So staking rewards are taxed twice in a sense: once as income when received, and once as a capital gain or loss when disposed of. The cost base for the CGT calculation is the AUD value you already declared as income, which prevents you from being taxed on the same value twice. But any appreciation or depreciation between receipt and disposal is a separate CGT event.

Example: You receive Ethereum staking rewards worth $1,000 AUD at the time of receipt. You declare $1,000 AUD as assessable income. Your cost base for those ETH rewards is $1,000 AUD. Six months later you sell those rewards for $1,500 AUD. You have a capital gain of $500 AUD, which may be eligible for the 50% CGT discount if held for more than 12 months from the date of receipt.

The 12-Month CGT Discount and Staking Rewards

The 50% CGT discount that applies to assets held for more than 12 months is available on staking rewards in the same way it applies to other crypto assets. The 12-month holding period begins from the date the rewards are received, not from the date you began staking.

This has meaningful practical implications for investors with significant staking activity. Rewards received and held for more than 12 months before disposal are eligible for the discount. Rewards received and sold within 12 months are subject to full CGT at your marginal tax rate.

For long-term investors who accumulate staking rewards and hold them for extended periods, the CGT discount can significantly reduce the tax liability on disposal. But this planning only works if the income tax obligation at the point of receipt has been correctly accounted for first.

Yield Farming: A More Complex Tax Picture

Yield farming involves deploying assets across DeFi protocols to earn returns through liquidity provision, lending, and token incentives. The tax treatment is broadly similar to staking in principle, but the mechanics of yield farming introduce additional complexity that requires careful attention.

Token rewards received as income: As with staking, tokens received as yield farming rewards are assessable income at their AUD value at the time of receipt. This includes governance tokens distributed by protocols, reward tokens from liquidity mining programs, and interest payments received in crypto form from lending protocols.

Liquidity pool deposits and withdrawals: When you deposit a token pair into a liquidity pool on a decentralised exchange, the ATO may treat this as a disposal of the deposited tokens and an acquisition of the LP tokens you receive in return. This means depositing into a liquidity pool could trigger a CGT event on the tokens you deposit, at their value at the time of deposit.

Similarly, when you withdraw from a liquidity pool and receive your tokens back, the ATO may treat the redemption of LP tokens as a disposal, triggering another CGT event. The specific treatment depends on the structure of the transaction and whether the tokens received on withdrawal are the same as those deposited.

This area involves genuine complexity and some degree of ongoing uncertainty as the ATO’s guidance continues to develop in response to evolving DeFi mechanics. Working with a qualified tax professional with specific DeFi and crypto experience is strongly recommended for investors with significant liquidity provision activity.

Impermanent loss: Impermanent loss, covered in our yield farming resource, occurs when the value of tokens in a liquidity pool diverges from what you would have held by simply holding them. From a tax perspective, impermanent loss is not a separately deductible loss event. It is reflected in the capital gain or loss calculation when you withdraw from the pool and dispose of your LP tokens, based on the actual value of what you receive compared to your cost base.

Wrapped and derivative tokens: Some DeFi protocols issue wrapped versions of assets or derivative tokens that represent underlying positions. For example, liquid staking protocols issue a receipt token in exchange for staked assets. The ATO may treat the exchange of an asset for its wrapped or derivative equivalent as a disposal, triggering CGT at that point. This is another area where professional advice is particularly valuable given the complexity and the pace at which DeFi mechanics evolve.

Compounding and Reinvestment: Each Event Still Counts

Many yield farming and staking platforms offer auto-compounding, where rewards are automatically reinvested back into the protocol to generate further returns. This is operationally convenient, but it doesn’t defer or eliminate the tax obligation.

Each time rewards are received and reinvested, a taxable income event occurs at the AUD value of the rewards at the time of receipt. Auto-compounding can result in dozens or hundreds of small taxable income events per year, each requiring a recorded AUD value at the time of occurrence.

This is one of the strongest practical arguments for using crypto tax software that integrates directly with the protocols and wallets you use. Manually tracking every compounding event across multiple DeFi protocols is impractical and error-prone. Automated tools that import transaction data and calculate the AUD value of each event make compliance significantly more manageable.

Record Keeping Requirements

The ATO requires records to be kept for a minimum of five years. For staking and yield farming activity specifically, your records need to include the date and time each reward was received, the type and quantity of tokens received, the AUD value of those tokens at the time of receipt, the platform or protocol through which the rewards were earned, and the wallet address into which rewards were deposited.

For yield farming positions involving liquidity pools, you also need records of the tokens deposited, the AUD value at the time of deposit, the LP tokens received, and the tokens and values received on withdrawal.

As covered in our resource on how the ATO tracks your crypto transactions, the ATO has significant data matching capability and cross-references exchange and on-chain data against reported income. Gaps between what the ATO’s data shows and what has been reported are flagged for review. Detailed, accurate records are your primary protection in that scenario.

Gas Fees and Their Tax Treatment

Gas fees incurred in the process of staking and yield farming are generally treated as part of the cost base of the transaction they relate to or as deductible expenses, depending on the nature of the activity. For investors earning staking or yield farming income in a business-like manner, gas fees may be deductible as a cost of earning that income.

The question of whether your crypto activity constitutes a business or an investment activity is a separate determination that affects multiple aspects of your tax position and is worth discussing specifically with a qualified tax professional.

The Distinction Between Investor and Trader

The ATO distinguishes between crypto investors and crypto traders, and that distinction affects how staking and yield farming income is treated in the context of your overall tax position.

For most individuals participating in staking and yield farming as part of a personal investment portfolio, the income treatment described in this resource applies. For individuals whose crypto activity constitutes a business, different rules apply to how income, losses, and expenses are treated, and the CGT discount may not be available.

The distinction is based on factors including the scale of activity, the degree of organisation and repetition, the intention to profit from transactions rather than long-term appreciation, and whether the activity has the characteristics of a business. This is a genuinely complex determination and one where professional advice is valuable if your activity is significant.

Key Takeaways

Staking and yield farming rewards are assessable income at their AUD value at the time of receipt, regardless of whether you sell them. A second CGT event occurs when you eventually dispose of those rewards, with your cost base being the value already declared as income. Yield farming through liquidity pools introduces additional complexity around deposit and withdrawal events that may each trigger CGT. Auto-compounding generates multiple taxable income events that must each be recorded. And detailed records kept for a minimum of five years are a legal requirement and your primary protection in the event of an ATO review.

The tax obligations that come with earning yield on crypto are real, active, and enforced. Getting across them properly from the start is significantly easier than reconstructing years of activity under pressure.

For investors managing significant staking and yield farming activity who want dedicated specialist support and access to tax tools, our Black Emerald and Obsidian Tier Members receive exactly that as part of their membership. For everyday investors building strong compliance foundations from the start, our Runite Tier Membership provides the education and frameworks to approach these obligations correctly.

Find out more at shepleycapital.com/membership.

WRITTEN & REVIEWED BY Chris Shepley

UPDATED: MARCH 2026