What is a non-fungible token?
A non-fungible token (NFT) involves similar digital technology as other crypto assets. However, a non-fungible token is not interchangeable in the same way as crypto coins or tokens.
NFTs typically record ownership of digital pictures or artworks, video clips, memes and items used in online games.
You can use an NFT to represent an ownership interest in any tangible or intangible asset. This occurs even where you store the asset outside of a digital ledger.
Income tax and NFTs
The tax treatment of an NFT depends on:
- your circumstances
- the way you use the NFT
- your reasons for holding and transacting with the NFT.
You may pay income tax on the NFT:
- as a CGT asset under the capital gains tax (CGT) regime
- on revenue account as trading stock
- as part of a business
- as a profit-making scheme.
As with other types of crypto asset, in rare circumstances you could hold an NFT as a personal use asset.
If your crypto asset is a traditional cryptocurrency (such as Bitcoin), see Crypto asset as a personal use asset.
Example: personal use NFT
Kim, a professional artist, paints a portrait of a famous Australian and decides to create 10 NFTs, each of which provides the right to one, 4-hour, private viewing of the portrait in her gallery each year for up to 20 people.
Jo is a relative of the portrait's subject. She buys the NFT and uses the private viewing to celebrate the subject's birthday with close family and friends every year.
For Jo the NFT is a personal use asset.
Example: personal use NFT
Jude, a gamer, acquires and uses NFTs which are cards in an online game.
While playing the game Jude acquires cards as a reward for winning games. These are also used by Jude in the game. Jude can buy and sell these cards on a marketplace associated with the game.
For Jude the NFT cards used in the game are personal use assets. As Jude doesn’t have any rights to the artwork on the cards they are not collectibles.
Example: NFT as part of a business
Kim, a professional artist, paints a portrait of a famous Australian and decides to create 10 NFTs, each of which provides the right to one, 4-hour, private viewing of the portrait in her gallery each year for up to 20 people. On subsequent transfers of the NFTs to new owners, the digital contract allocates part of the proceeds to Kim as a commission.
Kim retains all other rights associated with the painting.
The proceeds of the initial sale of the NFTs are assessable as business income to Kim. While she remains in business, any commissions received would also be business income. If Kim ceased carrying on the business, the commissions would still be assessable as her ordinary income.
The treatment in the hands of the owners depends on how they make use of the NFT.
Example: NFT as a capital asset of a business
Kim, a professional artist, paints a portrait of a famous Australian and decides to create 10 NFTs, each of which provides the right to one, 4-hour, private viewing of the portrait in her gallery each year for up to 20 people.
Osman buys one of Kim's NFTs. In running a tour business, he plans to use the private viewing of the portrait as part of an annual art tour of the region.
The NFT is a capital gains tax asset of the business.
End of exampleGST and NFTs
Under the GST rules, an NFT is not a form of digital currency. The GST treatment of an NFT depends on whether your transaction meets the requirements of being either a taxable or GST-free supply.
If your entity operates an NFT marketplace as an electronic distribution platform (EDP), you are responsible for GST on NFT sales that you facilitate for offshore sellers to Australian consumers. For more information, see GST on imported services and digital products.