According to a crypto tax specialist, modern parents must closely check their children’s gaming activities since some may be collecting a hefty tax bill.
Adam Saville-Brown, regional head of tax software provider Koinly, said that many are unaware that gains from play-to-earn (P2E) games are subject to the same tax repercussions as crypto trading and investment.
This is especially true for play-to-earn blockchain games that provide in-game tokens that can be exchanged on exchanges and therefore have real-world monetary worth.
Saville-Brown stated that a parent of a nine-year-old kid contacted him during the conference, concerned that his youngster was earning money via P2E games. However, the tax classification of P2E gaming gains can be complicated, at least in Australia.
Danny Talwar, the head of tax at Koinly, explained that in Australia if a person is playing a game to earn money, they are considered to be running a business and could face a complicated tax situation.
This is made more difficult because players might be investors or traders when playing these games.
According to the Australian Taxation Office, investors are liable for capital gains when they sell their assets. Still, traders engaging in the same activity would be considered selling shares in a business, and any profits would be taxed as ordinary income.
If users want to operate genuinely as a company and a business plan, then it will be taxed as a business. He cited the popular P2E game Axie Infinity as an example of a game that may be treated as a company for tax purposes since individuals use this game to earn a living.
P2E game Axie Infinity. Image:
The tax expert suggested that how one “should be treated from a tax perspective, all gets very complicated without guidance.”
When you bring in the additional issue of children under 18 playing games to earn a living and generating in-game value, this creates a market with tax repercussions that individuals are unaware of.
Similar circumstances might occur in the United States. Artav at Law, a law firm in the United States, asserts that issues arise because not all P2E profits are the same.
There is ambiguity because what and how the game rewards the player influences the sort of taxes the player must pay. The U.S. law firm claimed that regardless of whether it is referred to as a token, cryptocurrency, or virtual money, a native token is taxable as intangible property and is subject to capital gains tax, which the Internal Revenue Service (IRS) has maintained since at least 2014.
Nevertheless, if you earn crypto tokens as part of a play-to-earn game, the value of such crypto is taxed as regular income.