For unfortunate crypto investors looking to turn lemons into lemonade, experts tell Cointelegraph — it turns out that digital assets lost during an exploit or hack could be considered a tax loss if you live in the right country .
Following news of over 8,000 Solana wallets being stolen estimated There could be some much-needed consolation after $8 million in cryptocurrency was stolen due to a security breach in Web3 wallet provider Slope’s network.
Solana hack, and possible tax consequences: a thread https://t.co/JnYMrkB8qJ
— Crypto Tax Calculator (@CryptoTaxHQ) August 3, 2022
In a correspondence with Cointelegraph, Shane Brunette, CEO of Australia’s CryptoTaxCalculator, confirmed that cryptocurrency lost due to hacks or exploits may be declared tax losses in some jurisdictions.
“This means that the original amount you paid for the asset can be used to offset other capital gains.”
When asked if other tax jurisdictions other than Australia have similar regulations, Brunette, the country where the tax software provider is based, replied:
“Many countries have provisions that allow these types of tax breaks […] However, you should work closely with your local tax professional and make sure you keep sufficient proof of loss. “
Danny Talwar, head of taxation at Koinly, confirmed this to Cointelegraph, but stressed that in Australia, it is imperative to prove that the lost cryptocurrency was under their control at the time of the theft.
“To claim capital loss for hacked cryptocurrencies, you need to prove to the Australian Taxation Office (ATO) that the cryptocurrencies are lost and under your control.”
Talwar also said it is crucial that the tax authorities have sufficient evidence that the encryption is not retrievable, suggesting the use of blockchain explorer tools such as Etherscan and Solscan to obtain legitimate evidence about the addresses targeted by hackers — which could also Evidence that provides a large pool of evidence. Hacked funds.
Under Australian tax law, evidence of any hacking attack would also need to include the date the private key was obtained or lost and all relevant wallet addresses.
Related: Solana wallet ‘compromised and abandoned’ as users warn of scam solution
Unfortunately for crypto investors in the U.S., claiming hacked crypto is a tax loss is no longer possible According to a blog post by CryptoTaxCalculator, due to tax reform introduced in 2017.
For those living in the UK and Canada, things are slightly more complicated, but investors can file a tax loss claim if they are willing to go through the unique steps prescribed by each NRA.
This year alone, hackers and criminals lost about $2.6 billion in digital assets, with cross-chain bridging attacks accounting for 69% of the total losses.