Tax on Bitcoin Profits

YossiA

Hi there,

If you buy and then sell Bitcoins and make a profit, are you eligible to capital gains tax?

rogercross

How would one go about reporting those kinds of profits?

rogercross

Would that mess up your taxes, or potentially your tax band if it put you over a certain amount on top of annual salary?

McG

rogercross wrote: »

Would that mess up your taxes, or potentially your tax band if it put you over a certain amount on top of annual salary?

it shouldn't, that's income tax whereas you'd be paying capital gains on any bitcoin profit.

rogercross

McG wrote: »

it shouldn't, that's income tax whereas you'd be paying capital gains on any bitcoin profit.

I've feck all at the moment but some day it might be worth something, hate thinking i'd have to give a third away just because.

McG

rogercross wrote: »

I've feck all at the moment but some day it might be worth something, hate thinking i'd have to give a third away just because.

you'd have to give a third of the profit away (after your annual allowance)

rogercross

McG wrote: »

you'd have to give a third of the profit away (after your annual allowance)

Any legal way around that?

nuac

rogercross wrote: »

Any legal way around that?

Well somebody did move to Malta to legally avoid CGT.

rogercross

nuac wrote: »

Well somebody did move to Malta to legally avoid CGT.

Hmmm wouldn't be my first choice :-) Any other options? Is there any way of just cashing the coins out to physical cash not a bank account?

boardie100

rogercross wrote: »

Hmmm wouldn't be my first choice :-) Any other options? Is there any way of just cashing the coins out to physical cash not a bank account?

localbitcoins.com is the only way i can see doing this...

EndaHonesty

rogercross wrote: »

Any legal way around that?

CGT is liable on the profits from the sale of currency.

What is the legal definition of currency in Ireland?

I would imagine it would revolve around the term "legal tender".

IMO Cryptocurrencies are not, as of now, legal tender.

Until there is specific legislation around cryptocurrencies it is not factually correct to say the CGT is definitely liable on the sale of crypto.

As an asset, again IMO, until cryptocurrencies are specifically legislated for, there are no definite rules.

nate.drake

rogercross wrote: »

Any legal way around that?

If you're not resident in Ireland for tax purposes you don't have to pay CGT, but the rules around this are a tad convoluted.

nate.drake

rogercross wrote: »

Hmmm wouldn't be my first choice :-) Any other options? Is there any way of just cashing the coins out to physical cash not a bank account?

Technically speaking you'd still be liable for tax, although it would be difficult to enforce. You'd need to find a Bitcoin ATM, buy goods such as bullion or use LocalBitcoins as other posters have said.

EndaHonesty

OSI wrote: »

It has been stated by the Minister of Finance Michael Noonan, by means of parliamentary question and numerous requests to the department from private citizens, that gains accrued on crypto-currencies/virtual-currencies via the means of speculation would be liable for CGT.

Statements by a finance minister are not legally binding.

EndaHonesty

OSI wrote: »

Maybe not, but who's interpretation do you think is more likely to be correct: The man in charge of shaping our finance legislation with input from the revenue department that polices this stuff, or your definition of whether something is really a currency or not?

Michael Noonan is not "in charge of shaping our finance legislation", he's a dinosaur who wouldn't know a bitcoin from a byte.

He can't even speak the years of this century correctly. :rolleyes:

My point stands, there are no definitive rules on how cryptocurrencies are treated for tax purposes.

Until legislation is passed and Revenue make a clear ruling on it, it is open to interpretation.

nuac

If Noonan made a statement relating to tax liability on the likes of Bitcoins etc you can be sure he was advised by Revenue or D of Finance people.

It would be more prudent to provide for CGT as you go.

If there is any sudden collapse in these "assets" be sure to sell rather than abandon. Selling at a loss may allow you to offset the loss against any profits

Austria!

How is this policed? Like if you trade bitcoins or altcoins at polo or wherever, how does revenue know what you bought/sold and what price? If you gave the government 10000 in CGT, how would it even go about figuring if that was enough?

DubCount

If you are an Irish resident, you are liable for tax on your worldwide income.

CGT is applicable to the gains on selling any asset, not just a currency. Cryptocurrency has a value and is an asset. If you make a gain on the buying and selling a cryptocurrency, it falls under CGT. If you contact Revenue for their opinion, I'm sure they would agree.

CGT is a self assessment tax. If you dodge the tax, expect Revenue to levy interest and penalties as well as the tax you were due. Ultimately, to realise the gain, crypto currency needs to be converted back into real currency and lodged to a bank account - that can be traced.

Thargor

Austria! wrote: »

How is this policed? Like if you trade bitcoins or altcoins at polo or wherever, how does revenue know what you bought/sold and what price? If you gave the government 10000 in CGT, how would it even go about figuring if that was enough?

I would assume the person in revenue that reviews your returns will do a quick fag-packet calculation of BTC price vs the sums of Euros being deposited in your account and see that you weren't being 100% honest.

Austria!

Thargor wrote: »

I would assume the person in revenue that reviews your returns will do a quick fag-packet calculation of BTC price vs the sums of Euros being deposited in your account and see that you weren't being 100% honest.

OK, and how could they prove it? They just see the money leaving and entering your bank account. I assume fag packet calculations don't hold up in court.

Thargor

You might get away with lying about a few grand here and there that way but if its a significant sum how would it be any different from claiming you bought a bag of carrots for €1.50 and sold them to an anonymous person on the dark web for the price of a house? Im only guessing Im not a tax expert but I assume they've dealt with situations like this before with other not very well documented asset classes, farmers, secondhand cars or even drug dealers for example.

dxhound2005

There was a thread about this last month.

http://www.boards.ie/vbulletin/showthread.php?t=2057739629

nate.drake

Austria! wrote: »

OK, and how could they prove it? They just see the money leaving and entering your bank account. I assume fag packet calculations don't hold up in court.

Austria,

There are a few ways that they could detect you buying Bitcoins:

-- If you've used an exchange such as Bitstamp they can see from looking at your bank statements how much money you've wired there. This technically doesn't prove that you bought Bitcoins as you might have kept the money in fiat currency in the exchange but could prompt them to investigate further.

-- If you sell your Bitcoins and withdraw them via a registered exchange (a common way to cash out Bitcoins), this will also appear on your bank account. You could of course choose to buy and sell for cash, and as you say there'd be no way to prove definitively the money came from selling Bitcoins if Revenue examined your bank statements.

Assuming you buy and sell Bitcoins only for cash and don't withdraw/deposit large, mysterious sums into your Irish bank account, it would be very difficult to detect what you're doing.

If you use a software Bitcoin wallet such as Electrum, technically your IP address could be linked to a specific Bitcoin address, so anyone with accessing to your ISP's records could see how many Bitcoins you control - however they'd still have to prove you sold them as CGT is only charged when you cash out.

You can reduce the risk of this happening by either using a Bitcoin paper wallet, running your wallet software through tor, or running a 'full node' i.e using the official Bitcoin Core client to send and receive payments. This takes up a lot of space on your machine (around 125GB) but makes it much harder to link specific Bitcoin transactions to your IP. I could give you a boring, technical rundown of why this is the case but imagine you'd rather I didn't!

If you're not very comfortable with computers, the paper wallet is probably your safest bet but make sure you keep it safe as anyone who has a copy of it can spend your Bitcoins.

barneystinson

Something that people seldom understand is that once Revenue raise a tax assessment on you, the onus is actually on you (as the only party who has full knowledge of your own affairs, and legal obligations to have appropriate records) to disprove their assessment.

So I'd suggest if Revenue see you cashing in crypto currency and they get the sense that you're being less than forthcoming about the string of transactions, they'll just tax you on the maximum possible gain and then it'll be up to you to establish to theirs, the Tax Appeal Commissioner's, or ultimately a Court's satisfaction what your true tax liability is.

AndrewJRenko

Austria! wrote: »

How is this policed? Like if you trade bitcoins or altcoins at polo or wherever, how does revenue know what you bought/sold and what price? If you gave the government 10000 in CGT, how would it even go about figuring if that was enough?

The real question is not 'how is it policed today'. The real question is 'how will it be policed in 2 or 5 or 10 years down the line'.

There were lots of cute hoors with offshore bank accounts in the 70s and 80s who were absolutely certain that Revenue would never find out about them. But Revenue did. They have some of the best ICT systems in the country, so if your spending and assets don't match your income, they will find you eventually, and you'll be paying their punitive interest rates for all those years that you didn't pay up.

crowseye

So you get charged the 33 percent when you cash out right and anything above your initial investment is charged at that rate? Is it nice and simple like that or do trades from one coin to another matter too? Can't figure it out from looking at the documentation. Also if you exchange it for a currency like Euro on an exchange but don't withdraw it and trade it back to other currencies how is that handled.

McCrack

I presume revenue would only get wind if the bank tips them off.

I know there are reporting obligations on banks for suspicious transaction.

At what point does a transaction become suspicious does anyone know?

nate.drake

McCrack wrote: »

I presume revenue would only get wind if the bank tips them off.

I know there are reporting obligations on banks for suspicious transaction.

At what point does a transaction become suspicious does anyone know?

I am sorry buddy I don't feel comfortable discussing this further, no doubt one of the other posters will put you right.

AndrewJRenko

McCrack wrote: »

I presume revenue would only get wind if the bank tips them off.

I know there are reporting obligations on banks for suspicious transaction.

At what point does a transaction become suspicious does anyone know?

You presume wrong. All kinds of large purchases are reported to Revenue. If you buy a house or a car or artwork or a boat that doesn't match your declared income profile, you will be flagged up for special attention.

pro_gnostic_8

Interesting thread !

Gents, may I ask please ...............
If I were to buy gold with my bitcoin profits and using bitcoin to do so, would I be liable for CGT?
I.E., is CGT only liable if cashing out to fiat -- or is it also payable if cashing out to gold?

Thargor

Where can you convert cryptocurrency to gold in Ireland?

pro_gnostic_8

Unsure and not knowledgeable of bitcoin-to-gold in Ireland, but there are several highly reputable bullion dealing companies online who ship globally ( and in some cases free delivery).
This is new territory to me, so I'm not familiar with the details of it.
I would like to know, tho', if I'm liable for CGT if I cash out my bitcoin to gold.

The Cuban

Take a trip to London and visit the many Bitcoin Atms there. All of which allow you to withdraw 500 pounds per day (unregistered max)

pro_gnostic_8

Mr.S wrote: »

If you can even cash out from BTC to Gold, you would still need to pay GCT when you go from Gold to fiat, no?

Indeed ! But in this case I am knowingly kicking the can down the road.
I just want my bitcoin off the exchange for obvious reasons. I also want my main bitcoin stash off my trezor in the run-up to the August 1st UASF. I don't want to be a holder of bitcoin in the present period and want to unwrap the value and place it in a safe haven (gold?) until matters settle down post-UASF.

barneystinson

pro_gnostic_8 wrote: »

Unsure and not knowledgeable of bitcoin-to-gold in Ireland, but there are several highly reputable bullion dealing companies online who ship globally ( and in some cases free delivery).
This is new territory to me, so I'm not familiar with the details of it.
I would like to know, tho', if I'm liable for CGT if I cash out my bitcoin to gold.

Yes

Thargor

pro_gnostic_8 wrote: »

Indeed ! But in this case I am knowingly kicking the can down the road.
I just want my bitcoin off the exchange for obvious reasons. I also want my main bitcoin stash off my trezor in the run-up to the August 1st UASF. I don't want to be a holder of bitcoin in the present period and want to unwrap the value and place it in a safe haven (gold?) until matters settle down post-UASF.

A lot of people seem to be swapping theirs for ETH, a few exchanges let you do that, but then again if BTC tanks ETH will probably go aswell.

AndrewJRenko

The Cuban wrote: »

Take a trip to London and visit the many Bitcoin Atms there. All of which allow you to withdraw 500 pounds per day (unregistered max)

Thanks for reminding me of one extra addition to my earlier point.

You presume wrong. All kinds of large purchases are reported to Revenue. If you buy a house or a car or artwork or a boat or if your travel history doesn't match your declared income profile, you will be flagged up for special attention.

tecknika

OSI wrote: »

Yes, any gains over €1270 are taxable under capital gains tax. This includes gains from the sale of currency other than Euro.

:lol

pro_gnostic_8

Thargor wrote: »

A lot of people seem to be swapping theirs for ETH,

No, I have enough ETH as it is -- I wouldn't be comfortable adding more by converting my BTC to Eth.

Take a trip to London and visit the many Bitcoin Atms there. All of which allow you to withdraw 500 pounds per day (unregistered max)

Less than half (much less) of all ATM's allow Crypto to Fiat. And those that do allow, require verification etc and a waiting time for five confirmations. A drag. With the present snail's pace of bitcoin tx's on the network you'ld need to rent a week in some London hotel at the cost of an arm and a leg.

(I think the ATM in GSM Solutions shop in Abbey Street is Fiat to Crypto only ?)

Thargor

pro_gnostic_8 wrote: »

(I think the ATM in GSM Solutions shop in Abbey Street is Fiat to Crypto only ?)

Thats gone with ages, you hand over the cash at the counter now and get a docket with instructions telling you who to email your wallet address to, the BTC appear in your wallet a couple of days later, I just bit the bullet and made a Coinbase account.

The Cuban

AndrewJRenko wrote: »

Thanks for reminding me of one extra addition to my earlier point.

You presume wrong. All kinds of large purchases are reported to Revenue. If you buy a house or a car or artwork or a boat or if your travel history doesn't match your declared income profile, you will be flagged up for special attention.

let them flag away, what can they prove? fook all. People are far too soft with them, as Ive stated before I`ll not be giving revenue a cent and theirs nothing they can do about it.

If you really want to get the better of revenue then leave your money in crypto, they cannot trace it. Its the new evolution of money. The Governments cannot do a thing about it. The amount of places starting to accept payment in Bitcoin is growing faster now. Within 5 years it will be mainstream.
Keeping your wealth in Bitcoin is not a new thing, I remember many of the older generation would not keep money in the Bank but keep there own cash. That way they controlled their own wealth. Bitcoin is no different in that sense

AndrewJRenko

The Cuban wrote: »

let them flag away, what can they prove? fook all. People are far too soft with them, as Ive stated before I`ll not be giving revenue a cent and theirs nothing they can do about it.

If you really want to get the better of revenue then leave your money in crypto, they cannot trace it. Its the new evolution of money. The Governments cannot do a thing about it. The amount of places starting to accept payment in Bitcoin is growing faster now. Within 5 years it will be mainstream.
Keeping your wealth in Bitcoin is not a new thing, I remember many of the older generation would not keep money in the Bank but keep there own cash. That way they controlled their own wealth. Bitcoin is no different in that sense

You seem to misunderstand tax law. Revenue don't have to prove a thing - quite the opposite. If they audit you, YOU have to prove that everything you have was bought with clean, taxed income. And if you can't prove it, you end up with a very large bill and the sheriff at your door.

And all those places that accept payment in Bitcoin - how long do you think it is going to be before they start reporting purchases to the Revenue in their country, who will be sharing data with our Revenue here?

thegolfer

A point to note here is that in normal cases CGT applies to currency trading, however depending on the frequency and quantity of trades made it could be seen as revenue income and not capital, or income tax and not cgt.

For the most part, cgt most likely will apply.

Tax in Ireland is a self reporting system, obligation is down to you individually to pay and file.

pro_gnostic_8

The Cuban wrote: »

let them flag away, what can they prove? fook all. People are far too soft with them, as Ive stated before I`ll not be giving revenue a cent and theirs nothing they can do about it.

Oh I do like the cut of your jib, sir!

If you really want to get the better of revenue then leave your money in crypto, they cannot trace it. Its the new evolution of money. The Governments cannot do a thing about it. The amount of places starting to accept payment in Bitcoin is growing faster now. Within 5 years it will be mainstream.
Keeping your wealth in Bitcoin is not a new thing, I remember many of the older generation would not keep money in the Bank but keep there own cash. That way they controlled their own wealth. Bitcoin is no different in that sense

Agree with all the above.
It's just that I have major concerns about the issues surrounding UASF at the beginning of August, and I want out of BTC in advance of that date. There is too big an amount involved to take a gamble on the unknown with.
It is only a temporary move, and I will go back in when the dust settles. However, like you I have an aversion to being taxed at 30% for my prudence in playing safe

jester77

Could move over here to Germany. Any gains you've made on btc that are older than 1 year are tax free. Might be worth it if you are dealing with very large amounts.

The Cuban

AndrewJRenko wrote: »

You seem to misunderstand tax law. Revenue don't have to prove a thing - quite the opposite. If they audit you, YOU have to prove that everything you have was bought with clean, taxed income. And if you can't prove it, you end up with a very large bill and the sheriff at your door.

And all those places that accept payment in Bitcoin - how long do you think it is going to be before they start reporting purchases to the Revenue in their country, who will be sharing data with our Revenue here?

No I understand full well the tax law. I`m not stupid enough to be going around flaunting wealth that cannot be accounted for.
as for reporting purchases in Bitcoin, what will they report to revenue? Crypto wallets are anonymous, you can have as many as you want. It is in every way the same as paying in cash. The cash you have in your pocket does not have a record of who had it last, who you are or what it was used for before just like Bitcoin.

AndrewJRenko

The Cuban wrote: »

No I understand full well the tax law. I`m not stupid enough to be going around flaunting wealth that cannot be accounted for.
as for reporting purchases in Bitcoin, what will they report to revenue? Crypto wallets are anonymous, you can have as many as you want. It is in every way the same as paying in cash. The cash you have in your pocket does not have a record of who had it last, who you are or what it was used for before just like Bitcoin.

Try spending more than €10k cash on any car or artwork or other asset and you'll see exactly what records will end up with Revenue.

What will the vendors who accept bitcoin report to Revenue? The same as they report to Revenue when you pay cash - the ID of the seller, a verified ID for large purchases and the details of the purchase.

And even if you ignore all that stuff, you may well be flagged up for Revenue audit simply as an exception. If you have a €900k house when most other people with your level of declared income have a €500k house, you could well be flagged up. If you have an €50k car when most other people with your declared level of income have a €20k car, then you may well be flagged up.

nate.drake

The Cuban wrote: »

No I understand full well the tax law. I`m not stupid enough to be going around flaunting wealth that cannot be accounted for.
as for reporting purchases in Bitcoin, what will they report to revenue? Crypto wallets are anonymous, you can have as many as you want. It is in every way the same as paying in cash. The cash you have in your pocket does not have a record of who had it last, who you are or what it was used for before just like Bitcoin.

As I mentioned in my earlier post, while Bitcoin transactions are faceless, the exchanges used to buy and sell them aren't. Generally you need to register using ID plus link your bank account.

There's also the possibility that if you use a software wallet, that your IP address can be linked to specific transactions. You can reduce the chance of this happening by using a paper wallet or full node wallet as we discussed.

Technically speaking you could go onto LocalBitcoins.com and cash out your Bitcoins for actual money, then take your wad of cash and put it in a hole somewhere but would you really want to take that risk with a large sum of money? Why not simply find legal ways to avoid CGT such as setting up a small self administered pension scheme or move to a jurisdiction which doesn't charge this tax?

rogercross

jester77 wrote: »

Could move over here to Germany. Any gains you've made on btc that are older than 1 year are tax free. Might be worth it if you are dealing with very large amounts.

How would that work, move for a year, make the gains, cash out then move back here?

nate.drake

rogercross wrote: »

How would that work, move for a year, make the gains, cash out then move back here?

In principle yes but I think you need to be away for more than a year:

You are resident in Ireland for tax purposes if you are in Ireland for a total of:

• 183 days or more in a tax year or
• 280 days or more in a tax year plus the previous tax year taken together, with a minimum of 30 days in each year.

For these tests, a 'day' means any part of a day.

See : http://www.revenue.ie/en/jobs-and-pensions/tax-residence/how-to-know-if-you-are-resident-for-tax-purposes.aspx

rogercross

nate.drake wrote: »

In principle yes but I think you need to be away for more than a year:



See : http://www.revenue.ie/en/jobs-and-pensions/tax-residence/how-to-know-if-you-are-resident-for-tax-purposes.aspx

Interesting, if there were significant gains for me in the future a year+ abroad could be worth it vs handing 33% over here to revenue.

Do you still have to declare anything here though when you come back suddenly with a mad amount of money say 18 months after going away, income would be similar if not the same as before but suddenly have way more spending power