Modern parents need to monitor their children’s gaming habits even more closely, as some of them can accumulate huge tax bills, according to a cryptocurrency tax specialist.
Speaking to during the Australian Crypto Convention last week, Adam Saville-Brown, regional tax head for software company Koinly, said many don’t understand that play-to-earn (P2E) game revenues may be taxable. consequences in the same as crypto trading and investing.
This is especially true for blockchain games that offer game tokens that can be traded on exchanges and thus have real financial value.
“Parents used to worry about their kids playing games like GTA with violence. […] but parents should now be aware of a whole new level […] tax difficulties.
Saville-Brown said he was approached by the father of a nine-year-old son during the convention, concerned that his boy was “making money” from P2E games.
“A nine-year-old kid… is mining, betting, making videos on Youtube and TikTok to the point where his father had to bring him here today because he brings in so much money,” Saville-Brown told .
However, handling P2E game revenues – at least in Australia – can be tricky.
Koinly’s head of tax Danny Talwar explained that in Australia, if someone plays the game to generate income, they are considered “doing business” and may face a “difficult” tax situation, noting:
“If you are a professional player, you may be in business, so you will be treated according to these rules.”
This is further complicated as gamers can either “play these games like investors” or “play these games like traders”.
According to the Australian Taxation Office, investors receive capital gains when they sell their assets, while traders doing the same will be treated as “trading shares in the business” and thus any profit will be treated as ordinary income.
Talwar added that if users have “the intention to actually do business […] and have a business strategy”, then it will be treated as a business for tax purposes.
He mentioned the popular P2E game Axie Infinity as an example of a game that could be commercially assessed for tax purposes “because people use this game to generate income.”
The tax expert said that how someone “should be treated from a tax point of view, things get very complicated without guidance.”
He added that once you “add another question about minors under 18” playing games to generate income and “create in-game value, it has a market with taxable implications that people don’t necessarily realize.”
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A similar situation could play out in the US. Artav at Law, a US-based law firm, says the difficulty arises because “not all P2E revenue” is the same.
There is a gray area as “what (and how) a game pays a player determines the type of taxes a particular player will pay.” […] income in the form of NFTs? Tokens? Betting income? Airdrop?
Whether it is called a token, a cryptocurrency, or a virtual currency, the US law firm said that the native token is taxed as intangible property and subject to capital gains tax, on which the Internal Revenue Service (IRS) takes a “standing position on this matter.” “. This has been at least since 2014.
However, if you earn crypto tokens “as part of the ‘play to earn’ game, the value of such crypto is taxed as ordinary income,” the post reads.