Free tokens turned up in my wallet — do I owe tax on them? The ATO has published its first draft ruling on airdrops

You open the wallet app and there are 10,000 tokens in it that you never bought, never asked for and cannot value. Or you moved ETH into a wrapping contract last year so a DeFi app would accept it, got the same amount back as WETH, and never saw a dollar. Neither felt like a transaction. Until this week, what either one did to your tax return had to be reasoned out from the general rules. Now there is a document.

What was released

Two drafts, both signed by the Commissioner of Taxation on 19 August 2026. Draft Taxation Ruling TR 2026/D1 covers the income tax and CGT consequences of issuing or receiving crypto assets by an airdrop. Draft Taxation Determination TD 2026/D2 covers the CGT consequences of using a smart contract to wrap and unwrap crypto assets.

Draft is not final: each describes itself as the Commissioner's preliminary view and says it will not take effect until finalised. Drafts do carry one protection — rely on one reasonably and in good faith and, if it later turns out to be wrong, you will not pay interest or penalties on the matters it covers, though you would still pay the correct amount of tax. Comments close on 18 September 2026 for the wrapping determination and 2 October 2026 for the airdrop ruling, so the wording can still move.

The airdrop definition is narrow: a distribution by an issuer requiring no or minimal effort from you and no consideration in fiat or other crypto. It does not cover tokens you paid for, rewards for providing liquidity to a decentralised exchange, or non-arm's-length transactions.

If you hold crypto as an investor

The draft view here is the gentler one. If you are not carrying on a business of crypto asset trading, and the tokens did not come as a reward for services or as part of another income-producing activity, you do not include their market value in your assessable income when they land.

That is not the same as tax-free. The airdropped token is its own CGT asset, separate from whatever holding entitled you to it, and CGT event A1 happens when you later dispose of it. Where you paid nothing, the first element of the cost base is worked out under the normal cost base rules, which in these cases generally means the token's market value when you acquired it; where it had no or negligible market value then, it will generally be nil.

The ruling's own example: someone not in business finds 10,000 tokens in her wallet that she did nothing to obtain, already trading at $0.05 each. Nothing is assessable on arrival, her cost base is $500, and the gain is measured against that when she sells. Notice what a nil cost base would have meant instead — the whole proceeds as a gain.

If the tokens arrived because you did something

Then the answer changes. Receive an airdrop in return for goods or services provided to the issuer and its money value is ordinary income — section 21 of the 1936 Act treats non-cash consideration as if it were cash. Bounty airdrops, where the price of entry is posting about a project or tagging it, are the everyday version.

If you are carrying on a business of crypto asset trading, the draft is blunter: the market value of any airdropped token is ordinary income, even as a gift or windfall, and even if you never asked for it. A token received purely from a hobby or entertainment activity is not assessable, and the costs of that hobby are not deductible. Where an amount has already been taxed as income, the capital gain on the later disposal is reduced to that extent.

Wrapping: the one most likely to catch people out

TD 2026/D2 treats wrapping as a disposal. When you send ETH to a wrapping contract, the draft says your ownership ends by abandonment: the link between that asset and the address your private key controls is severed, and the contract's promise to release an equivalent amount later does not preserve an interest in the original. CGT event C2 happens at that moment. The WETH you receive is a new, separate CGT asset with a cost base equal to the market value of the ETH you sent in, and unwrapping is a second C2 event when the WETH is burnt.

The example shows the size of it. Someone buys 5 ETH for $10,000 and four years later wraps them to use a DeFi application, when they are worth $30,000. Capital proceeds $30,000, cost base $10,000, a $20,000 capital gain — from something that felt like a format change, with no sale and no cash. Whether any discount applies depends on the holding period and the taxpayer's circumstances.

How far back it reaches, and what decides your position

Both drafts propose to apply before as well as after the final version is issued — the Commissioner is describing how the law already worked, including in years already lodged. One carve-out: for initial allocation airdrops, where no trading had happened in the token beforehand and so there was no observable market value, the ruling would apply only to airdrops after it is finalised.

All of it turns on numbers most people never wrote down: the date each token hit the wallet, its market value at that moment, and the date and value of every wrap, unwrap and disposal. Exchange exports rarely capture airdrops or on-chain wrapping cleanly, so those are worth reconstructing while the block explorer still makes it easy. Two smaller points — unwanted tokens dumped into your wallet are still a CGT asset, and what you spend cleaning up the wallet forms part of their cost base; and a phishing email offering tokens you never claimed gives you nothing to declare, because on the ruling's example nothing arrived and no asset was acquired.

This is general information current as at 22 August 2026, not advice about your holdings. These are drafts, they can change, and how they apply depends on whether you are investing, running a business or pursuing a hobby, and on the facts of each receipt. If airdrops, wrapped tokens or DeFi activity sit inside returns you have already lodged, working through them now means knowing the position before the ATO's data matching raises it — which is what our individual tax return service is for, alongside our earlier piece on why swapping crypto without cashing out is still a disposal.