P2E gamers, minors not any safer from the tax man, says Koinly

Modern parents will need to pay closer attention to their children’s gaming habits, as some of them may be racking up huge tax bills, according to a crypto tax expert.

Adam Saville-Brown, regional head of tax software company Koinly, told Cointelegraph at last week’s Crypto Australia Conference that many people don’t realize that income from play-to-earn (P2E) games could be subject to the same tax consequences as cryptocurrency transactions and investment methods.

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

“Parents used to worry about their kids playing games like GTA with violence […] But parents now need to be aware of a whole new level […] Tax complexity. “

Saville-Brown said he was approached by the father of a 9-year-old son during the convention, concerned that his son was “making money” through P2E gaming.

“This 9-year-old… 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 Cointelegraph .

However, the processing of P2E gaming revenue – at least in Australia – can be complicated.

Koinly’s head of tax, Danny Talwar, explained that in Australia, if a person played games to earn income – they were considered “running a business” and could face a “complex” tax situation, noting:

“If you’re a professional gamer, you’re probably running a business, so you’re treated by rules like that.”

This is more complicated because gamers may “play these games as investors” or “play these games as traders”.

According to the Australian Taxation Office, investors will receive capital gains when they sell assets, and traders who do the same will be treated as “trading shares in a business”, so any profits will be treated as ordinary income.

Talwar added that if the user “intends to really operate as a business” […] and have a business strategy”, then it will be considered a business for tax purposes.

He cites the popular P2E game Axie Infinity as an example of a game that might receive commercial treatment for tax purposes “because people use it to earn income”.

Tax experts advise, “If there is no guidance on how to look at it from a tax perspective, everything can become very complicated.”

He added that once you “plus under-18s” playing games to earn revenue and “create in-game value, there’s a market and there are taxable consequences for doing so, and people don’t necessarily Realize that.”

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A similar situation could play out in the United States. U.S. law firm Artav at Law said the complication arises because not “all P2E benefits” are the same.

There is a grey area that “what (and how) the game pays the player determines the type of tax a particular player will owe. […] Is the income in the form of NFTs? Token? Pledge income? airdrop? “

Whether called tokens, cryptocurrencies or virtual currencies, native tokens are taxed like intangible assets and are subject to capital gains tax, the U.S. law firm said, which the Internal Revenue Service (IRS) “holds. unanimous position” this has been since at least 2014. “

However, if you earn crypto tokens “as part of a game to earn money, the value of that crypto currency will be taxed as ordinary income,” it said.