Legal Obligations With NFT Ownership?

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Legal Obligations With NFT Ownership

May 13, 2021         Jayfer Joy

Non-Fungible-Token’s (NFT) are digital collectables representing items including art, videos, and even real estate. The data on the individual token is what makes the token unique and therefore non-fungible. This article looks at the key legal concerns for individuals buying, owning or selling NFT’s.

IP Concerns

Where you are creating, owning or selling NFT’s, it is essential that you avoid copyright infractions. Copyright laws protect the original creator of creative work. It ensures that the creator has exclusive rights to use and reproduce their work. For example, if someone has tokenized your work, whether it be a meme, artwork or even tweet, they would be committing a copyright infringement. As such, you would be able to file a Digital Millennium Copyright Act notice against the owner of the NFT or the marketplace that is selling the NFT. 

It is crucial to understand who owns the Content. For example, you can tokenize and sell a tweet because Twitter’s terms and conditions state that ‘You retain your rights to any content you submit, post…. What’s yours is yours – you own your Content’. If you tokenize a tweet that you are not the owner of, you may be infringing on copyright laws. However, if you create a design/product during your employment at a university or a company, they may own the copyright to your design/product. If you were to tokenize and sell that design/product, you may breach copyright laws.

Tax Considerations

The jurisdiction you are in will determine the tax implications associated with selling / trading NFT’s. The ATO provides minimal guidance as to the tax obligations of NFT’s. 

In a recent private advice, 1051694175099, the ATO made the following determinations:

  • NFT’s are CGT assets;
  • Which are not personal use assets,
  • They are not collectables.

You should note that this was a private ruling, and other rulings may have different outcomes depending on the situation.

As such, NFT’s may have similar tax consequences to that of ordinary cryptocurrency. Cryptocurrencies are taxed depending on whether they are taxed as income (business) or investment (personal), and are considered CGT assets. Accordingly CGT taxation event occurs when you:

  • Sell or gift the NFT;
  • Trade the NFT for another NFT or cryptocurrency;
  • Use it to obtain goods or services.

Reducing Tax Obligations

As NFT’s are considered CGT assets, you may reduce your tax obligations like any CGT asset. 

This can include:

  • Holding onto your NFT for more than one year to be entitled to a 50% CGT discount;
  • Offsetting the capital gain with capital losses. 

Key Takeaways:

  • NFT’s are digital assets and attract certain obligations when owning or selling them. 
  • There are certain IP considerations, including copyright restrictions, that may apply when holding NFT’s. 
  • Whilst there are limited guidelines on the taxation of NFT’s, in Australia, NFT’s can be considered CGT assets similar to that of cryptocurrencies. 

If you’re looking to speak with lawyers who understand blockchain, crypto and NFTs then come and chat with our team.

About Jayfer Joy

Jayfer is a paralegal with OpenLegal. His legal areas of focus include conveyancing, intellectual property, and commercial litigation. Jayfer is also passionate about podcasts in the legal space.