Tax Events in the Life Cycle of Digital Tokens

Digital tokens, or crypto assets, are digital financial assets based on distributed ledger technology. They come in a considerable variety of forms and have been used in a large number of different ways. Yet, relatively few tax laws of any jurisdiction mention digital tokens specifically. It is therefore necessary to consider how orthodox tax rules can be applied to transactions involving digital tokens. Given the broad range of forms which digital tokens and transactions involving them can take, this may appear to be a daunting task. A framework providing a rough guide on how to navigate this somewhat new area of tax would be useful.In this blog post, I propose a crypto taxation framework that divides along the lines of the main types of digital tokens in question and the common tax events in the “life cycle” of digital tokens.While there can be a considerable variation in the types of potential transactions that can involve digital tokens, most tax events can generally be divided into:1) creation (through mining, forging, issue and purchase, or others);2) transfer (through exchange for goods and services, other tokens or fiat currency); and3) disposal (through redemption, token burning or loss)