Sunday, March 21, 2021

Taxes Related to Staking

I understand this subreddit is focused on Bitcoin, but I am hoping we could get a discussion started around the tax treatment of the different current and upcoming ways to stake crypto, which might also benefit users with wrapped coins (WBTC, etc.).

I have enumerated the different ways one can participate in staking below (feel free to add more if I am missing any) and for each of them, my understanding of the tax treatment after some research.

I understand the CRA has not issued specific guidance on staking so currently the recommendation is to follow the guidance for mining - either classified as a hobby (pay capital gains tax at time of sale with cost basis of zero) vs. business (pay income tax the year in which the reward is earned (and add to cost basis) and pay capital gains tax at time of sale).

Running Validator Node: maintain a node on Ethereum's beacon chain and earn ETH that cannot be withdrawn until the merge and until withdrawals are permitted

Taxable event occurs when rewards can be withdrawn - classified as hobby vs. business, see above.

Staking Through CeFi: exchange ETH for BETH and then BETH for ETH (on Binance)

Taxable event occurs when ETH is sold for BETH (and again if BETH is sold back for ETH) - capital gains tax given your cost basis for ETH (or BETH).

Staking Through DeFi (Tokenized Staking) - Running Validator Node: maintain a 16 ETH minipool (or full 32 ETH pool) through RocketPool (also need 10% RPL) and earn rETH

Taxable event occurs when the rETH is sold - capital gains tax given cost basis of zero.

Staking Through DeFi (Tokenized Staking) - Staking: exchange ETH for rETH and then rETH for ETH (noting that the value of rETH is not pegged to ETH so the staking rewards make rETH worth more than ETH)

Taxable event occurs when the ETH is sold for rETH (and again if rETH is sold back for ETH) - capital gains tax given your cost basis for ETH (or rETH).

I expect some of the above to not be exactly correct so please help us clarify the tax treatments under the different scenarios and let's get a discussion going!


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