For unlucky crypto investors looking to turn lemons into lemonade — it turns out that digital assets lost during an exploit or hack can be claimed as a tax loss, provided you live in the right country, experts told Cointelegraph.
Following the news that more than 8000 Solana wallets have been hacked and that estimated $8 million in cryptocurrency has been stolen due to a security breach in the network of wallet provider Web3 Slope, and this may be some much-needed solace.
Solana hack, potential tax consequences: a topic https://t.co/JnYMrkB8qJ
– Crypto Tax Calculator (CryptoTaxHQ) August 3, 2022
In correspondence with Cointelegraph, Shane Brunette, CEO of Australia-based CryptoTaxCalculator, confirmed that cryptocurrency lost through hacking or exploitation can be declared as a loss for tax purposes in some jurisdictions.
“This means that the original amount you paid for the asset(s) can be used to offset other capital gains.”
When asked if there are similar provisions in tax jurisdictions other than Australia, the brunette, country where the tax software provider is located, answered:
“Many countries have a requirement to allow these kinds of tax cuts […] However, you should work closely with a local tax professional and make sure that you keep adequate proof of the loss.”
Danny Talwar, the head of tax at Quinley, confirmed the same with Cointelegraph, stressing that in Australia, one must prove that the lost cryptocurrency was under their control at the time it was stolen.
“To claim a capital loss due to a hacked cryptocurrency, you will need to provide evidence to the Australian Tax Office (ATO) that the cryptocurrency was lost and that it was under your control.”
Talwar also mentioned that it was critical for the IRS to have enough proof that the crypto was unrecoverable, suggesting that blockchain explorer tools like Etherscan and Solscan were used to get legitimate proof of a hacker’s destination address – which could also provide evidence of a large pool of the hacked money.
Under Australian tax laws, any evidence of a breach must also include dates relating to when the private keys were acquired or lost and all associated wallet addresses.
Related: Solana wallets ‘hacked and abandoned’ as users warn of scam solutions
Unfortunately for US crypto investors who claim hacked cryptocurrency as tax loss no longer exists. possible Because of the tax reform introduced in 2017, according to a blog post by CryptoTaxCalculator.
For those who live in the UK and Canada, things are a bit more complicated, but claiming a tax loss is possible if investors are willing to go through the unique steps outlined by each country’s tax office.
Nearly $2.6 billion in digital assets was lost to hackers and nefarious actors this year alone, with cross-chain bridging attacks accounting for 69% of the total amount lost.