This article will explain how you can avoid spending tokens that are staked when it comes to cost-basis calculations.
Let's assume you have originally bought 200 ATOM tokens, which you are now staking on an exchange such as Kraken. Next, you trade BTC for ATOM and then sell the newly acquired ATOM tokens a few weeks later. You will now "spend" the staked ATOM tokens using the FIFO calculation method to calculate the cost basis for the sold tokens. Because the tokens staked are illiquid and locked, the tokens you sold are actually the tokens received when trading BTC for ATOM earlier, which also has a different acquisition cost than the staked tokens.
Here is a summary of the transactions:
Bought 200 ATOM - June 1, 2023
Started staking 200 ATOM - June 10, 2023
Exchanged 0.05 BTC → 50 ATOM - July 20, 2023
Exchanged 50 ATOM → 0.07 BTC - August 15, 2023
Unstaked 200 ATOM - October 30, 2023
The cost basis for 50 ATOM sold on August 15 will be calculated from the 200 ATOM bought on June 1, assuming FIFO is the chosen cost basis method. If we instead want NOT to spend the staked ATOM tokens, we will need to add the following two transactions:
Exchanged 200 ATOM → 200 sATOM - June 10, 2023 (tag as Swap)
Exchanged 200 sATOM → 200 ATOM - October 30, 2023 (tag as Swap)
The easiest way to add these transactions is to use the Coinpanda generic file:
This is how the final transactions look on the Transactions page:
Adding the two Swap transactions will transfer the original cost basis of the 200 ATOM tokens to the "staked" ATOM token we named SATOM. This means that when 50 ATOM is sold on August 15, the cost basis will be calculated from 50 ATOM bought on July 20 instead of the 200 ATOM tokens staked.
In this example, we chose sATOM as the ticker symbol in the generic file, but you can use any symbol or ticker you prefer. The only important thing to remember is that it must be a unique ticker symbol, not identical to another currency, so the cost basis will be tracked correctly.
Do I need to pay tax when staking or unstaking tokens?
In the world of DeFi, swapping a token for its staked version means swapping one contract address for another. From a tax perspective, the general rule is that swapping a token for another with a different contract address is considered a taxable disposal in most countries. However, given the lack of regulatory clarity surrounding the tax implications of staking and unstaking, it could be argued that no gains will be realized at the time of staking and unstaking since both tokens represent the same asset.
There have been several conflicting statements from tax authorities around the world with regard to these matters, so if in doubt, we recommend consulting a tax professional in your country.
How does the Swap tag affect the acquisition date of staked tokens?
Trade transactions tagged as Swap will see the cost basis of the tokens disposed of being transferred to the acquired tokens without realizing any capital gains. However, the original acquisition date is not transferred. This means that if you add another Trade (Swap) transaction for unstaking at a later date, the unstaked tokens will take on an acquisition date similar to the date of the Trade (Swap) transaction for the unstaking.
It is important to be aware of this since which order the tokens are disposed of will be affected if a cost-basis method such as FIFO or LIFO is used. Depending on several factors, this might affect both the absolute value of the realized gains and the holding period for tokens disposed of.
At the current time, there is still a lot of uncertainty with regard to the tax treatment of staking and unstaking operations. To the best of our knowledge, using the Trade (Swap) label for such operations will be accepted by tax authorities in most major jurisdictions as long as staking and unstaking are not seen as taxable events. However, if staking and unstaking are seen as taxable events, you should add a Trade transaction without any label to be considered equal to normal trades.
If you have further questions about this, we highly recommend consulting a tax professional in your country.