In many countries right now, it is currently tax season. This means that many of us are going through the headaches of filing our taxes. For crypto investors/users/traders this may lead to extra complexities! In almost every country, we are obligated to file our derived income and gains/losses from our crypto activities. The first challenge is to figure out what exactly constitutes a taxable event – and this varies from country to country.
The second challenge is to obtain the necessary data and to make the calculations you need to complete your tax filings. The latter is also something that may seem daunting to many. In this article we will go over these matters briefly and give you a high-level overview of how crypto taxation looks like in some of the larger western countries.
Disclaimer: This article should not serve as official tax advice. For official tax advice, please consult with a registered CPA such as the ones working with TokenTax (who we recommend you check out).
United States rules
- In the United States, all forms of cryptocurrencies (coins and utility tokens) are considered property or assets (not currencies) for tax purposes. This means that profits made from buying and selling of cryptocurrencies are taxable as capital gains (and any losses offset those gains).
- There is a limited amount capital losses that can be deducted from regular income as a private individual and any losses that remain can be used to offset future capital gains.
- Airdrops and forks are also taxable events and need to be filed.
- Like-kind exchanges (crypto to crypto exchanges) are considered a taxable event and should therefore be accounted for at the dollar equivalent value of the exchange.
- If you used crypto to purchase goods and services, that is also considered a taxable event and not exempt (there are ongoing proposals in new crypto related tax bills to create a limited exemption, but those have not been approved yet).
- Any income or revenue earned and received in cryptocurrency are also taxable events and need to be taxed under income taxes at the dollar equivalent at the time of receiving.
- Mining revenue is also taxable, however, expenses related to mining (energy, equipment write-offs) can be deducted in many cases.
- If you failed to “harvest” your capital losses of 2018, TokenTax has a very helpful feature to lock in your capital losses for 2019 to minimize your tax liability. Read more about tax loss harvesting.
- In Canada, cryptocurrencies are recognized as commodities. This means that payments done with cryptocurrencies are regarded as barter transactions. The price in Canadian Dollars of the purchased goods is the value that needs to be recorded.
- Any capital gains and losses you generate from cryptocurrency trading needs to be filed on your individual return. For professional traders that trade for income, income taxes apply on gains.
- The revenue of mining that is done as a business is taxable, but mining as a personal hobby might be considered non taxable.
- More details about cryptocurrency taxation in Canada, can be found here.
United Kingdom (UK) rules
- The UK does not consider cryptocurrency as currency or money, rather as (crypto) assets. The tax code differentiates between 3 different categories: exchange tokens (currency coins such as BTC and LTC), utility tokens, and security tokens. Tax treatment is the same for all 3 categories at time of writing.
- Capital gains need to be paid when you “dispose” of your crypto asset (for example by selling, using it for payment, trading for another coin and even donating it). However there is a tax exemption amount, so you only have to pay when the gains exceed that amount.
- Capital losses can be deducted from the total of capital gains.
- Mining, airdrops, income paid in cryptocurrency, and trading as a business fall under income tax.
- If a token has become essentially worthless and/or has become untradeable (for example due to de-listing), the incurred loss can be deducted as well (as if it were disposed of), but this needs to be actively claimed.
- More details about crypto taxes in the UK can be found in this article by Token Tax.
European Union (EU) rules
The European Court of Justice has declared Bitcoin (and thus other cryptocurrencies) currency and not property, which means no VAT needs to be paid on the purchase of Bitcoin. Other taxes may apply, but this varies from country to country. A few examples:
In Germany, according to this article by Winheller Tax Advisors, a tax on gains from buying/selling cryptocurrency applies for individuals, but only if the cryptocurrency is bought and sold within 1 year. If the cryptocurrency is held for more than 1 year, the gains are exempt from taxation. Germany therefore seems very friendly for HODLers. Different circumstances may however trigger other provisions. It is essential to have good tracking of purchases and sales to be able to prove when transactions have occurred. Support from tax experts for your German crypto tax filing is also highly recommended.
In Holland there is no such thing as capital gains taxes, only wealth tax, and Bitcoin holdings need to be added to the total assets (minus debts) of the individual. The total amount of wealth above a threshold is then taxed at the rate of 0.61-1.61%. This applies for crypto investing as well as mining. Two caveats:
- Measurement of assets value is Jan 1st, so if prices dropped (which they did in 2018 after Jan 1st), you still need to pay the tax over the Jan 1st value! So make sure you set aside or sell the amount needed into EUR to pay for this tax.
- Active trading or a professional mining operation could theoretically be classified as a source of income in which case the tax official may charge income taxes over it (rates up to 51%)
- Individuals in Denmark aren’t subject to taxes on crypto trading and in Belgium there are no official tax regulations, but crypto trading could be taxed at 33%.
- The wide variety of existing or non-existing tax regulations per country and tax percentages from 0% to over 50%, makes it essential for EU citizens to investigate how their country’s tax authority regards cryptocurrencies.
- Goods and Services Tax (GST, comparable to Sales Tax or VAT) generally do not apply anymore to cryptocurrencies in Australia. Some ICOs, however, might be subject to GST if the digital token gives access to goods or services.
- Disposing (selling, giving away, trading) of cryptocurrencies may trigger a Capital Gains Tax (CGT) event. However, there may be gray areas.
- If a cryptocurrency is held as investment and sold, it is clearly a CGT event.
- If it was acquired and disposed for personal use (buying tickets in Bitcoin at discount), it will very likely fall under personal use and not be taxed (up to a threshold).
- The period of holding and the transaction that follows influence the determination if it is “Personal Use” or a CGT event.
- If a crypto asset was held more than a year before disposal, it is very likely to be a CGT event, however, a discount on the CGT applies in that scenario.
- More details about crypto taxation in Australia can be found on this page of the Australian Tax Office.
Crypto is anonymous, so why should I file taxes on it?
That could turn out to be a gross misjudgment! Cryptocurrencies are mostly pseudonymous, which means that although your name is not attached to a transaction on the blockchain, currently many blockchain analysis companies are able to identify individuals connected to transactions and this will increasingly be used by tax authorities. Even privacy coins are allegedly not able to escape these forensic companies. So sooner or later you may expect the tax authorities to come after you if you hadn’t file your taxes properly.
Crypto taxes seem like a huge headache to me
Filing crypto taxes can be complicated because you may have many transactions spread out across different exchanges/wallets. Additionally, determining how each type of transaction is classified in your country can be a challenge, especially when most tax codes aren’t very clear regarding cryptocurrencies.
Because of this we highly recommend the use of crypto tax specific software, such as TokenTax, to easily import all the records of your transactions. Furthermore, the excellent support that TokenTax provides can be very useful in all of your edge cases or gray areas that may appear.
This article was written to the best of our knowledge with the information available to us. We do not guarantee that every bit of information is completely accurate or up-to-date. Please use this information as a complement to your own research. Nothing we write in any of our articles is intended as investment advice nor as an endorsement to buy/sell/hold anything. Cryptocurrency investments are inherently risky so you should never invest more than you can afford to lose.