Digital assets lost during an exploit or hack can potentially be claimed as a tax loss, provided you live in the right country, experts told Cointelegraph. Following the news that estimated $8 million dollars in crypto had been stolen due to a security breach in Web3 wallet provider Slope’s network, this may be some much-needed consolation. Australian, Canadian & U.K. crypto investors may potentially claim hacked crypto as a tax loss, but U.S. investors will miss out, according to tax experts.
Shane Brunette, the CEO of Australia-based CryptoTaxCalculator confirmed that crypto lost via a hack or an exploit could be declared as a loss for tax purposes in certain jurisdictions.
“This means the original amount you paid for the asset(s) can be used to offset other capital gains.”
“Many countries have a provision to allow for these types of tax deductions […] however, you should work closely with a local tax professional and make sure you keep adequate proof of the loss,” he added.
Danny Talwar, Head of Tax at Koinly confirmed the same with Cointelegraph. He also declared that in Australia, one must demonstrate evidence that the crypto lost was under their control at the time it was stolen.
“To claim a capital loss for hacked crypto, you’ll need to demonstrate evidence to the Australian Tax Office (ATO) that the crypto is lost and it was under your control.”
Talwar stated it was critical that the tax authority has enough evidence that crypto is unretrievable, signifying the use of blockchain explorer tools like Etherscan and Solscan to sincere evidence on the destination address of the hacker — which may also provide proof of a large pool of hacked funds.
Under Australian tax laws, any indication of a hack needs to also include dates as to when private keys were acquired or lost and all of the associated wallet addresses.
According to a blog post by CryptoTaxCalculator, unfortunately for U.S.-based crypto investors demanding hacked crypto as a tax loss is no longer possible due to tax modification introduced in 2017.
For those living in the UK & Canada, things are a little more difficult but a tax loss due is possible if investors are willing to go through the unique steps set out by each country’s taxation office.
Approximately $2.6 billion in digital assets has been lost to hackers and wicked actors this year alone, with cross-chain bridge attacks accounting for 69% of the total amount lost.
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