According to a crypto tax specialist, modern parents will need to be more vigilant about their children’s gaming habits in order to prevent them from racking up a large tax bill.
Cointelegraph spoke to Adam Saville Brown, the regional head of Koinly’s tax software company. He said that earning from play-to earn (P2E), can have tax consequences just like crypto trading or investing.
This is especially true for blockchain-based play-to-earn games, which offer tokens in-game that can be traded on the exchanges and have real-world financial worth.
“Parents used to worry about their children playing games such as GTA with violence […], but now they need to be more aware of the […] tax complexities.”
Saville Brown said that a father approached him during the convention, worried about his nine-year-old son’s “making bank” with P2E games.
Cointelegraph was told by Saville Brown that the nine-year-old child is mining, staking, and creating Youtube and TikTok videos.
However, it is possible to be complicated about how P2E earnings are treated in Australia.
Koinly’s Head Tax Officer Danny Talwar explained to us that in Australia, if someone is “running a company” they could be subject to tax complications.
“If you are a professional player, it is possible that you run a business. You would be treated accordingly.”
This makes it even more complicated because the gamers could be “playing this game as an investor” or “playing this game as a trader.”
According to the Australian Taxation Office (ATO), investors can gain capital gains when they sell assets while traders trading the same thing will be considered “trading stock within a business” and any profits would be treated like ordinary income.
Talwar stated that users who “intentionally run as a company […]” and have a business plan will be considered a business for tax purposes.
He mentioned the P2E game Axie Infinity, which he said could be eligible for business tax treatment because people play that game to make an income.
Tax experts advised that one should be treated tax-wise. Without guidance, it can get very confusing.
He said that if you “throw in another issue of minors below 18” playing games for an income or “creating in-game worth”, that creates a market with taxable consequences that people don’t necessarily realize.
Related: What countries are worst for crypto-taxation? A new study lists the top five countries for crypto taxation.
Similar situations could occur in the United States. Artav at Law is a U.S. Law firm that states that there are complications because not all P2E earnings are the same.
There is a grey area. “What (and how) the game pays the players determines the type and amount of taxes they will owe […] the income in NFT? Tokens? Staking income? An airdrop?”
According to the U.S. law firm, native tokens are subject to capital gains taxes, regardless of whether they are called tokens, crypto currencies, or virtual currencies.
It said that crypto tokens earned “as part a play to-earn game” are taxable just like ordinary income.