CGT on Cryptocurrency Question

hankbell

Hello all,

I'm curious about investing a small amount in the cryptocurrency market but I want to understand the tax implications before doing this.

From digging around it appears that CGT would be due on any profits made from any investments. I have never dealt with any self assessed taxes before and having looked at some of the forms, the whole thing makes my head spin.

My question is, does anyone know for certain that CGT it owed on cryptocurrencies such as Bitcoin and which form I would have to fill out if I made any profits? Is it a form 12 I fill out? I am employed and have a paye anytime account. Can it be done digitally and if so, is it more simple that way?

On top of that, is there any good reference online for complete and utter newbies when it comes to this type of thing specifically for the Irish tax system? For someone who never studied business in school, it's mostly all gibberish to me. I'm doing my best to unravel it however I'm finding it very difficult to find simple answers.

For instance, what information would I need in the following simple scenario:

I buy bitcoin today in 2017 and hold onto it for one year and decide to sell it in 2018. I'm guessing I'll need the date I purchased the bitcoin, the amount I paid for it and the amount of bitcoin I received/the exchange rate on that day. Then the same again for the date I sell? Since I will have done this across a two calendar years, but I will not have sold any bitcoin in 2017, do I still have to pay CGT since I have not actually sold any Bitcoin for euro or do I still need to pay CGT on my, I suppose you could say "virtual/on paper profits" (I'm not sure of the correct term). I realize there is a relief on the first 1270 euro. Is it still necessary to file a return if I make less than this and how strict is it?

I know this is a big bag of questions so I'll leave it there. If anyone could even point me in the direction of who could help answer these questions that would be a huge help.

Thanks a mill.

Peregrinus

The usual advice is that speculating in bitcoin will be treated for CGT purposes like speculating in more established foreign currencies. Keep detalied records of all your transactions - dates, values, amounts, everything. The bitcoins that you buy are basically assets that you acquire, and you won't have any liability to CGT until you sell them.

hankbell

Peregrinus wrote: »

The usual advice is that speculating in bitcoin will be treated for CGT purposes like speculating in more established foreign currencies. Keep detalied records of all your transactions - dates, values, amounts, everything. The bitcoins that you buy are basically assets that you acquire, and you won't have any liability to CGT until you sell them.

thanks for replying Peregrinus, good to hear CGT only applies on the sale of the assets, I wasn't 100% clear on that.
I wonder could you help me understand the following scenario? These are completely made up numbers for simplicity:

I buy 1 bitcoin for 100 euro and then I trade that Bitcoin for 50 Litecoins and 10 Etherium and then I sell the Litecoins and Etherium for Euro currency one year later (or some arbitrary amount of time) and I get 200 euro making my gains 100 euro.

How exactly does one account for the trading between the bitcoin and cashing out to euro? Does revenue need to know about the trade going on inside the crypto-currency marketplace or just the amount I paid in Euro for the Bitcoin and the amount I received in Euro after I sold the Litecoin and Etherium? If they do need to know about the trade from bitcoin to Litecoin and Etherium...how exactly is that handled/declared as it's more complicated than just money in for one asset and out for the same asset?

This is one part I really don't understand. I suppose it would be similar to day-trading. I'm not sure how you declare a scenario like that.

Hope someone can give their two cents on this one, it would be a huge help in a mental roadblock on this subject I'm facing. Cheers!

Mr. Incognito

I'll save you the bother

Invest in something tangible.

Not made up currency equations. Its a pyramid scheme

hankbell

Mr. Incognito wrote: »

I'll save you the bother

Invest in something tangible.

Not made up currency equations. Its a pyramid scheme

haha, I appreciate the candour however my question still stands for anyone willing to answer. I wish to understand this not only for cryptocurrncy trading but as a means to understand how the mechanics of taxing something like this works. Thanks a mill.

Mr. Incognito

hankbell wrote: »

haha, I appreciate the candour however my question still stands for anyone willing to answer. I wish to understand this not only for cryptocurrncy trading but as a means to understand how the mechanics of taxing something like this works. Thanks a mill.

http://www.revenue.ie/en/personal/buy-sell/shares.html

Not sure if this applies for cryptocurrency but I expect it would.

But if I was you I'd not bother. Its a bubble that will inevitably collapse to zero.

hankbell

Thanks for the link, interesting. I'm guessing the section on "Rights Issue/Shares of a Different Class" is what you were pointing me to? I'm wondering if this applies though since you would be starting an entirely new transaction when you have bought your bitcoin and now you are using the bitcoin to buy litecoin for example. I'm guessing it's not the same as being offered a share at lower than the market rate as is the case in the "rights issue".

Aside from that, the math in the example is confusing the hell out of me! For instance, they say in the example they that he bought 1000 shares at E6.35 which would obviously cost E6350 however in their math they keep referring to the cost as E6349 (excuse my lack of euro symbol, keyboard problems). Further on they mention that enhanced expenditure which I'm assuming is the cost of the preference shares which is 500 x E5 which is 2500...which they refer to later on first as E2000 (in the bullet points) then in the math example as E2540. Am I drunk/completely misunderstanding the calculations or was the guy who wrote this not paying attention to himself? Math isn't my strong point so I'll assume I'm wrong!

Anyway, that's sort of beside the point. I wonder what is the best avenue for someone new to this to learn. The language and examples on the revenue site are virtually impenetrable for someone who has not studied business or accounting.

Out of curiosity Mr.Incognito, what information do you have that Bitcoin will collapse to Zero, is it a hunch or have you been following it closely? I realize it has its many ups and downs over the years and seems to grow at an unsettling rate at times which is off-putting to a sensible person! Genuinely curious on your thoughts as to why it's off-putting for you? Aside from the insane volatility at the moment with cypto, it seems it will become adopted more and more as the years go on, in the same way the internet was a mysterious wild west and very "out there" technology at the time. The more that adopt, the less volatility and the decentralized nature of the currency seems to be quite attractive to people. I'm very new to this though so I obviously don't know everything.

CIARAN_BOYLE

hankbell wrote: »

Thanks for the link, interesting. I'm guessing the section on "Rights Issue/Shares of a Different Class" is what you were pointing me to? I'm wondering if this applies though since you would be starting an entirely new transaction when you have bought your bitcoin and now you are using the bitcoin to buy litecoin for example. I'm guessing it's not the same as being offered a share at lower than the market rate as is the case in the "rights issue".

Aside from that, the math in the example is confusing the hell out of me! For instance, they say in the example they that he bought 1000 shares at E6.35 which would obviously cost E6350 however in their math they keep referring to the cost as E6349 (excuse my lack of euro symbol, keyboard problems). Further on they mention that enhanced expenditure which I'm assuming is the cost of the preference shares which is 500 x E5 which is 2500...which they refer to later on first as E2000 (in the bullet points) then in the math example as E2540. Am I drunk/completely misunderstanding the calculations or was the guy who wrote this not paying attention to himself? Math isn't my strong point so I'll assume I'm wrong!

Anyway, that's sort of beside the point. I wonder what is the best avenue for someone new to this to learn. The language and examples on the revenue site are virtually impenetrable for someone who has not studied business or accounting.

Out of curiosity Mr.Incognito, what information do you have that Bitcoin will collapse to Zero, is it a hunch or have you been following it closely? I realize it has its many ups and downs over the years and seems to grow at an unsettling rate at times which is off-putting to a sensible person! Genuinely curious on your thoughts as to why it's off-putting for you? Aside from the insane volatility at the moment with cypto, it seems it will become adopted more and more as the years go on, in the same way the internet was a mysterious wild west and very "out there" technology at the time. The more that adopt, the less volatility and the decentralized nature of the currency seems to be quite attractive to people. I'm very new to this though so I obviously don't know everything.

Well you could go do an accountancy degree. Or a tax technician course.

http://taxinstitute.ie/CareersandCourses/TaxTechnicianQualification.aspx

RHJ

This post has been deleted.

jimmycrackcorm

hankbell wrote:

My question is, does anyone know for certain that CGT it owed on cryptocurrencies such as Bitcoin and which form I would have to fill out if I made any profits? Is it a form 12 I fill out? I am employed and have a paye anytime account. Can it be done digitally and if so, is it more simple that way?

You can do the form 12 online in revenue myAccount. Certainly easier than the paper equivalent.

RHJ wrote:

This post has been deleted.

That may be but the problem is when you convert the gains back into actual money in your bank and have to explain where it comes from and why you shouldn't be paying tax on the whole amount, but just the gain.

Peregrinus

hankbell wrote: »

thanks for replying Peregrinus, good to hear CGT only applies on the sale of the assets, I wasn't 100% clear on that.
I wonder could you help me understand the following scenario? These are completely made up numbers for simplicity:

I buy 1 bitcoin for 100 euro and then I trade that Bitcoin for 50 Litecoins and 10 Etherium and then I sell the Litecoins and Etherium for Euro currency one year later (or some arbitrary amount of time) and I get 200 euro making my gains 100 euro.

How exactly does one account for the trading between the bitcoin and cashing out to euro? Does revenue need to know about the trade going on inside the crypto-currency marketplace or just the amount I paid in Euro for the Bitcoin and the amount I received in Euro after I sold the Litecoin and Etherium? If they do need to know about the trade from bitcoin to Litecoin and Etherium...how exactly is that handled/declared as it's more complicated than just money in for one asset and out for the same asset?

This is one part I really don't understand. I suppose it would be similar to day-trading. I'm not sure how you declare a scenario like that.

Hope someone can give their two cents on this one, it would be a huge help in a mental roadblock on this subject I'm facing. Cheers!

I think the way it would be viewed would be the same as if you were buying and sellling in conventional currencies.

So:

1. When you pay (say) 100 euro to buy the bitcoin , you are acquiring an asset.

2. When you sell the bitcoin at a time when it is worth (say) 120 euro, you are disposing of an asset and making a gain of 20 euro. The fact that your are not paid in euro is irrelevant. You might be paid in Litecoin or Eutherium or Swiss Francs or Sterling; you're still making a gain of 20 euro (based on current exhange rates) and that's what you report for tax purposes.

3. A similar analysis applies to the acquisition and disposal of the litecoin and the etherium. Let's say you acquire 60 euros worth of Litecoin and 60 euros worth of etherium. A year later you sell the litecoin which is now worth 70 euros (gain: 10 euros) and you also sell the etherium which is, sadly, worth only 45 euros (loss: 15 euros). Again, it doesn't matter whether you sell it for euros or for some other currency.

Geuze

RHJ wrote: »

This post has been deleted.

All bitcoin transactions are public and traceable.

It was designed that way.

hankbell

Peregrinus wrote: »

I think the way it would be viewed would be the same as if you were buying and sellling in conventional currencies.

So:

1. When you pay (say) 100 euro to buy the bitcoin , you are acquiring an asset.

2. When you sell the bitcoin at a time when it is worth (say) 120 euro, you are disposing of an asset and making a gain of 20 euro. The fact that your are not paid in euro is irrelevant. You might be paid in Litecoin or Eutherium or Swiss Francs or Sterling; you're still making a gain of 20 euro (based on current exhange rates) and that's what you report for tax purposes.

3. A similar analysis applies to the acquisition and disposal of the litecoin and the etherium. Let's say you acquire 60 euros worth of Litecoin and 60 euros worth of etherium. A year later you sell the litecoin which is now worth 70 euros (gain: 10 euros) and you also sell the etherium which is, sadly, worth only 45 euros (loss: 15 euros). Again, it doesn't matter whether you sell it for euros or for some other currency.

Thanks so much, that is the info I have been looking for!

Since you seem to have been down this route yourself, I might aswell ask, if you don't mind:

Apologies if this is getting too specific with my questions, perhaps this isn't the right place to ask but I can't find the resources for this scenario online. I'm looking at a CG1 form right now (I likely wont be making yearly tax returns so I'm guessing CG1 is ok?). For the description of Capital Gains I would assume I would tick "(k) Other Assets" as I cannot see an option for foreign currency?
My final question is, assuming I have all my transactions accounted for, how exactly are these logged in the form? I was under the impression that all transactions must be declared but there is only room for the Number of Disposals and the Aggregate Consideration? So am I to assume then that you just have to add up the totals of what you spent on assets (currency) and then subtract them from the total that you receive in Euro after you have sold them all (I realize the math is a little more involved but just for simplicity sake)? If not, then where exactly do you declare all those intermediary transactions going from Euro to Lite Coin/Etherium then back to Euro? Also, the number of disposals in our scenario would be how many exactly? Buying Bitcoin with Euro then Selling for Lite Coin and Etherium and then selling for Euro. I'm guessing it is 3 since I sold the Bitcoin for the other two currencies then sold Etherium and Lite Coin totaling 3 sales before Euro was acquired again.

I think if I could at least understand these simple enough concepts it would help my understanding and overall picture on how CGT works a huge amount and potentially be a good resource for any other beginners like myself searching this forum.

Thanks so much for taking the time.

Peregrinus

Can't help you, I'm afraid. I'm working from first principles here, but I've never engaged in transactions like this and I've never had to complete the paperwork.

hankbell

No worries. thanks a mill anyway. Still open ears to anyone else but I have my doubts I'll get an answer!

Miike

Geuze wrote: »

All bitcoin transactions are public and traceable.

It was designed that way.

BC Tumblers take care of that problem. Since so many coins are associated with the online drugs trade, it became a necessary tool.

Marcusm

hankbell wrote: »

Thanks so much, that is the info I have been looking for!

Since you seem to have been down this route yourself, I might aswell ask, if you don't mind:

Apologies if this is getting too specific with my questions, perhaps this isn't the right place to ask but I can't find the resources for this scenario online. I'm looking at a CG1 form right now (I likely wont be making yearly tax returns so I'm guessing CG1 is ok?). For the description of Capital Gains I would assume I would tick "(k) Other Assets" as I cannot see an option for foreign currency?
My final question is, assuming I have all my transactions accounted for, how exactly are these logged in the form? I was under the impression that all transactions must be declared but there is only room for the Number of Disposals and the Aggregate Consideration? So am I to assume then that you just have to add up the totals of what you spent on assets (currency) and then subtract them from the total that you receive in Euro after you have sold them all (I realize the math is a little more involved but just for simplicity sake)? If not, then where exactly do you declare all those intermediary transactions going from Euro to Lite Coin/Etherium then back to Euro? Also, the number of disposals in our scenario would be how many exactly? Buying Bitcoin with Euro then Selling for Lite Coin and Etherium and then selling for Euro. I'm guessing it is 3 since I sold the Bitcoin for the other two currencies then sold Etherium and Lite Coin totaling 3 sales before Euro was acquired again.

I think if I could at least understand these simple enough concepts it would help my understanding and overall picture on how CGT works a huge amount and potentially be a good resource for any other beginners like myself searching this forum.

Thanks so much for taking the time.

Rights to Bitcoin and other items are not currency per se as they are not freely exchangeable for goods. They would fall under "other assets" but, in technical terms, they are choses in actions - rights as against another person. The disposal of Bitcoin for Lite Coin would be a disposal of the Bitcoin and the consideration for the disposal is "money's worth" rather than money and would be the value of the Litecoin received. There are circumstances which could arise where your activity amounts to a trade (and thus assesable as income) rather than an investment activity (assessed as a capital gain/loss item).

hankbell

Marcusm wrote: »

Rights to Bitcoin and other items are not currency per se as they are not freely exchangeable for goods. They would fall under "other assets" but, in technical terms, they are choses in actions - rights as against another person. The disposal of Bitcoin for Lite Coin would be a disposal of the Bitcoin and the consideration for the disposal is "money's worth" rather than money and would be the value of the Litecoin received. There are circumstances which could arise where your activity amounts to a trade (and thus assesable as income) rather than an investment activity (assessed as a capital gain/loss item).

Thanks Marcusm. I wonder what that threshold of activity is, are we talking about something like day trading here? I would be considering investing a small amount spread across some alt-coins that have good support and development and leaving it for a year or more and seeing how it goes. I assume this would be a CGT situation rather than income? There's no dividends involved.

ZeroThreat

Surely regular (day) trading in digital currencies should really fall under income tax rather that CGT which is for simply buying, holding for a longer period of time and then selling.

Peregrinus

There aren't any special rules for the taxation of buying and selling cryptocurrencies, SFAIK; transactions are taxed in the same way as if you were buying and selling conventional currencies.

There's always a bit of a blurry line around when a pattern of buying and selling assets is being done with the kind of system and regularity that makes it into a "trade or profession", the earnings from which are subject to income tax rather than CGT. If you're doing this on a scale where the difference in tax rates and/or tax treatment is likely to make a material difference to you, it would be worth your while paying for advice from a tax adviser who can help you arrange matters so you have the best chance of getting the most advantageous treatment.