Business taxation Infrastructure & innovation Consultation

Token Mapping

Author: The Joint Bodies

Published Date: 14 Mar 2023


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Consideration of taxation implications

The Joint Bodies broadly support the Government’s token mapping exercise to align token activities to financial services. However, the exercise may not result in the appropriate outcome from a tax perspective in all instances. Page 7 of the Consultation Paper notes that the purpose of token mapping is to map key activities and functions against existing regulatory frameworks. However, the current focus of the Consultation Paper is limited to financial services. The tax implications of token activity depend on a range of factors including the surrounding circumstances and intention of the parties involved, with potentially different outcomes for taxpayers undertaking the same type of token activity. There is a risk that a generalised approach which places token activities into broad buckets from only a financial services perspective will result in tax outcomes that may not be equitable or intended.

We consider that a token mapping exercise should also map the tax outcomes to token activities. For example, where a token activity is deemed to align to a share buyback, the tax implications of a share buyback should also apply to that activity. We note that some activities may not easily map to existing concepts or arrangements in tax due to fundamental structural and operative differences that exist in both public and intermediated token systems.

Where tax outcomes differ from the financial services outcomes under current tax laws, the issues and relevant provisions should be clearly identified so that any necessary reforms can then be progressed. Although the continually evolving nature of tokens and token activities requires a technologically neutral approach from both a financial services and tax perspective, additional guidance and clarity on the Government’s policy positions and consequential economic bases for tax treatments will assist taxpayers and their advisers to understand and apply the rules (existing or new) to their circumstances.

Mapping token activities for tax purposes should focus on the substance of the transaction over the specific form. The combination of steps may be looked at holistically for a financial services assessment, but individual steps could separately give rise to tax outcomes that increase the overall tax burden and produce tax outcomes that are anomalous to the intended operation of the tax law. 

There may be some tokens and token activities which, despite a token mapping exercise, may not provide any insights about the appropriate tax treatment. For example, we consider that challenges exist in determining the tax residency and/or spread of taxable permanent establishments and appropriate tax outcomes for decentralised autonomous organisations (DAOs). DAOs are unique structures that are enabled by borderless and permissionless blockchain technology and may not be directly analogous to traditional entities, such as companies, partnerships and trusts. Further, each DAO may be subject to a different tax treatment under our current tax system based on a range of different factors, including whether the decision making is self-activating and the determination of how proceeds will be distributed. To enable the efficient operation of businesses through a DAO, we recommend that Government considers recognising DAOs as a form of legal person (such that it can fall within references to ‘entity’ within the tax laws) and thereby providing certainty on the tax implications when commencing or engaging with a DAO. 



  • Published By:The Joint Bodies
  • Published On:14 Mar 2023

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