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Blockchain Bites: Disney and Sony embracing a Web3 future, ATO crypto guidance draws


Michael Bacina, Steven Pettigrove, Tim Masters, Jake
Huang, Luke Higgins, Luke Misthos and Kelly Kim of the Piper
Alderman Blockchain Group bring you the latest legal, regulatory
and project updates in Blockchain and Digital
Law.

Entertainment giants Disney and Sony embracing a Web3
future

In a magical move that’s making waves, entertainment
juggernaut Disney is stepping into the blockchain realm with the
announcement of their NFT collectibles platform, Disney
Pinnacle
. Partnering with Dapper Labs, the group behind the
wildly popular NBA Top Shot NFT marketplace, Disney Pinnacle
is aiming to bring collecting and trading of Disney IP into the
digital realm.

Much to the excitement of Disney fans and blockchain enthusiasts
alike, Dapper Labs Co-Founder and CEO Roham Gharegozlou announced
the news on X:

1393168a.jpg

Drawing inspiration from the iconic pins scattered across Disney’s theme
parks
, this platform will mint pin-inspired digital
collectibles as NFTs on the Flow blockchain, the same network that powers
the slam-dunk success of NBA Top Shot and NFL All Day.
Enthusiasts will be able to own a digital pin featuring the
charisma of Buzz Lightyear, the beauty of Disney Princesses, or the
dark allure of Darth Vader—no longer confined to physical
pinboards but securely nestled in the digital universe.

Disney Pinnacle is designed exclusively for mobile, and promises
that fans can dive into the world of NFT collectibles with ease.
Gharegozlou assured fans that this platform wasn’t just a remix
of Top Shot; it’s said to be a carefully curated platform for
the everyday fans and high-end collectors. While the platform is
currently twirling on the tip-toes of a waitlist, Gharegozlou
stated there will be gradual onboarding process for users to
beta-test the experience before its official launch.

As Disney dances into the blockchain spotlight, Sony is also
poised to join in the rhythm in what is a powerful duo of the
entertainment industry embracing blockchain technology. Just over a
month ago, Sony announced that it was partnering with Web3 builder
Startale Labs to build their own blockchain
. In a recent blog post on the Sony Group portal, Sony
announced plans to leverage blockchain beyond the confines of
cryptocurrency, echoing a transformative belief in blockchain’s
potential to reshape social systems.

By harnessing its vast reservoirs of intellectual property
across electronics, movies, music, video games, and finance, Sony
envisions a future where blockchain orchestrates a harmonious
exchange of information. Masaaki Isozu, president of Sony Global
Education, believes blockchain has the potential to challenge the
established norms of capitalism. Sony Music Entertainment’s
newest service is called “soundmain“, and the company is intending
to leverage blockchain technology to manage copyright
information.

As Disney and Sony step onto the blockchain stage, the footsteps
of these two titans sends a resounding signal to the
world—the era of blockchain isn’t just a digital
spectacle, but has the power to reshape industries. Transcending
just cryptocurrency speculation, blockchain as a technology has the
potential to usher in a new era of innovation and
collaboration.

By Michael Bacina, Steven Pettigrove and Luke
Higgins

ATO crypto guidance draws attention to need for
legislative clarity

The Australian Taxation Office (ATO) has
released new non-binding web guidance addressing the
taxation of crypto assets for individuals engaging in crypto asset
activities.

The newly updated guidance is provided across three subsections,
being:-

  1. crypto asset transactions with gift cards or debit
    cards
    ;
  2. crypto asset prizes and gambling winnings;
    and
  3. decentralised finance and wrapping
    crypto
    .

The ATO’s definition of “crypto
assets”

Despite the lack of a formal definition of “crypto
assets” in the Australian taxation legislation, the ATO has defined “crypto assets” in their
non-binding web guidance
as:

…a subset of digital assets that use cryptography to protect
digital data and distributed ledger technology to record
transactions. They may run on their own blockchain or use an
existing platform such as Ethereum…

There are no special tax rules for crypto assets. The tax
treatment will depend on how you acquire, hold, and dispose of the
asset.

For tax purposes, crypto assets are not a form of money.

The GST Act has
a definition of “digital currency”
and trading
digital currency is largely a GST free activity.

Crypto asset transactions with gift cards or debit
cards

The ATO has carved out three particular examples. First, the
guidance states that a capital gains tax (CGT)
event occurs when an individual uses (i.e. disposes of) crypto
assets to acquire a gift card. This CGT event occurs regardless of
whether the gift card is denominated in AUD or crypto assets.

Example: acquiring a gift card with crypto
assets

Raj buys 50 ABC tokens for $50. Raj later uses these tokens to
buy a $100 gift card. A CGT event happens when Raj buys the gift
card, as he disposes of 50 ABC tokens in exchange for the gift
card.

Raj has a capital gain of $50.

A CGT event also occurs when loading or topping up a gift
or debit card using crypto assets. If an individual
transfers crypto assets to the digital wallet of the gift or debit
card provider for the purpose of loading or topping up the card,
the transfer of the crypto assets into that digital wallet is a
deemed CGT disposal. The proceeds for this CGT event are equal to
the amount by which the available balance of the card is increased
(in AUD equivalent).

Example: loading a debit card using crypto
assets

Yindi has a debit card that is linked to her crypto wallet.
Yindi uses her debit card to buy a television for $2,000.

The debit card provider draws crypto assets from Yindi’s
crypto wallet and converts them to AUD to pay to the merchant.

The capital proceeds for the disposal of crypto assets are
$2,000.

The release of this particular guidance is timely, given the
increase in the number of “crypto debit card” like
products being offered on the market today (see for example CryptoSpend, the Crypto.com VISA
Debit Card
and the Binance Visa Card).

Where taxpayers use a gift or debit card that is denominated in
crypto assets, the AUD value of the available balance changes as
the price of the crypto assets change. The ATO provides the
following example of how such dealings may be taxed:

Example: using a gift card denominated in crypto
assets

Olivia has a gift card denominated in XRP. Olivia paid 500 XRP
to acquire the gift card and it has an available balance of 500
XRP.

At the time Olivia acquired the gift card, XRP had a market
value of $1 [per XRP].

Olivia uses the gift card to buy a guitar costing 400 XRP.

At the time Olivia acquires the guitar, XRP had a market value
of $0.95. Olivia has a capital loss of $20 and a remaining balance
of 100 XRP on the gift card.

This creates complexities for individual taxpayers using crypto
asset denominated cards. Given the inherent volatility of crypto
assets, taxpayers should be aware of the compliance (record
keeping) burden is placed on them when transacting with their card
as the price of crypto assets can change rapidly and often
dramatically.

Crypto asset prizes and gambling winnings

Subject to certain situations, prizes won in ordinary lotteries
(like lotto draws and raffles) and on game shows are not generally
considered ordinary income. The ATO guidance states that
individuals usually do not need to include details of capital gains
and capital losses made directly from gambling or prize games, a
re-statement of the ATO’s findings in Taxation Ruling IT 2584. It is important to
note that individuals who dispose of CGT assets (e.g. investments)
for gambling purposes still have a CGT event.

If an individual wins a crypto asset, the ATO guidance states
that that individual may hold the asset won as an investment. In
such circumstances, the ATO states that the eventual disposal of
that crypto asset may be subject to CGT, with the cost base of that
crypto asset being its market value as of the time of the win.

Example: crypto asset won in a lottery is held as
investment

Anwar pays $100 for tickets in an online lottery where the prize
is crypto assets. Anwar wins the lottery prize of $20,000 worth of
crypto assets. The winnings from the prize are not ordinary income
and any capital gain is disregarded.

Of course, any gains on the price of winnings of crypto-assets
when sold later will still be assessable for tax.

Decentralised finance and wrapping crypto

The ATO defines decentralised finance or “DeFi”
as:

a blockchain-based form of finance that is conducted without
relying on a financial intermediary (peer-to-peer)

The ATO warns that CGT events can arise in a DeFi environment,
usually in the form of CGT events A1 (Disposal of a CGT asset), C2
(Cancellation, surrender and similar endings), E2 (Transferring a
CGT asset to a trust), or H2 (Receipt for an event relating to a
CGT asset)
. Contentiously, this can be the case even where an
“equivalent” transaction or dealing takes place in a
non-DeFi environment (i.e. with “traditional finance”
assets or arrangements like lending and borrowing). The ATO states
that CGT events occur in DeFi scenarios as the beneficial ownership
of the relevant crypto asset ends due to the arrangement.

The ATO also expresses a view that a CGT event will generally
arise where an individual taxpayer transfers a fungible crypto
asset (for example, ETH or a similar ERC-20 compliant token) to an
address that the individual doesn’t control and/or that already
has a balance of the same fungible crypto asset. In this scenario,
the capital proceeds from the CGT event are equal to the market
value of the asset received by the taxpayer in return for
transferring the crypto asset.

The ATO provides the following example of a lending arrangement
with a DeFi platform:

Example: CGT treatment when you lend to a DeFi
platform

Mika buys 100 ZYX coins for $1,000 and ‘lends’ them to a
DeFi platform.

The terms of the contract are unclear about whether Mika retains
beneficial ownership of the 100 ZYX coins. The DeFi platform pools
the ZYX coins that Mika ‘lends’ at the same address as the
ZYX coins it receives from other ‘lenders’.

As ZYX coins are fungible, a CGT event happens in respect of
Mika’s ZYX coins at the time of the initial ‘loan’.

Under the contract, Mika has a right to receive 100 ZYX coins
from the DeFi platform at a future time. At the time Mika receives
the right (being the time she made the initial ‘loan’),
each ZYX coin had a market value of $9. Mika’s right was valued
at $900, so she has a capital loss of $100. Mika’s right has a
cost base of $900.

Three months later, the ‘loan’ is repaid and Mika’s
right to…



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