Liquidity Pools according to Australian Tax Law

Hello Koinly team,

I have a case where I locked my tokens into a smart contract in order to get some rewards. I didn’t receive any Liquidity Pool tokens back.

I asked Australian Tax Office (ATO) for their interpretation, and they said, that when the token leaves my wallet, it’s a disposal (so it triggers a Capital Gain Tax event). However, at this point I acquire a right to unlock the tokens in the future. Hence, when unlocking, I trade the right for the tokens. Because I’m disposing my right, it also triggers a Capital Gain Tax event. Hence I need to be able to attach cost basis to the unlock transaction.

In short, according to the ATO:

  1. When I send my tokens into an external contract, and I’m able to request these tokens back in the future, I trade the tokens in exchange for the right to unlock them.
  2. When I request the tokens back, I trade the right to unlock them in exchange for the tokens.

There are two Capital Gain Tax events in this scenario. How can I correctly mark them in Koinly?

For a sake of clarity, here are my transactions:

This is my interpretation, but I think the current deposit and withdrawl as they are align with how the ATO views this scenario. As it’s a disposal you declare a capital gain at the point of placing into the smart contract, and once you receive again it’s a deposit with the new cost basis the current value of the token.

With this method how we have to treat such scenarios in Australia an alternative feature for tracking portfolio holding value for such transactions would be helpful, based on a label that could be assigned.
Alternatively a switch for realising gains for sent to pool would probably suffice for this?