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Cost of acquisition calculations

  • 02-02-2021 2:00pm
    #1
    Registered Users Posts: 30 super ted rules
    Registered User


    Revenue's - Taxation of cryptocurrency transactions link

    There is no available information from Revenue to say what are the acceptable methods to calculate the cost of acquisition when calculating a loss or a gain with crypto.

    The assumption in the community is that First In First Out (FIFO) is appropriate, but it not clear if other methods are also acceptable. There is no reference in the tax document linked above, and there were no changes when it was last reviewed in April.

    Having talked to friends in the crypto community and the accounting world, there have been a lot of different approaches over the last few years. I appreciate their position may have changed over time as they learn, but I really feel like they should be able to define the exact rule.

    I'd be interested to hear your thoughts or experiences on this topic!

    Other methods:
    Last In First Out (LIFO)
    Pooling method (Avg cost basis)
    Highest In First Out (HIFO)

    Thanks in advance,


Comments

  • Registered Users Posts: 1,038 ✭✭✭ rapul
    Registered User


    Hmm, it's a trap.


  • Registered Users Posts: 30 super ted rules
    Registered User


    rapul wrote: »
    Hmm, it's a trap.


    Please explain what you're concerned about?

    This is a genuine question and nobody has been able to answer it very well.


  • Registered Users Posts: 6,482 ✭✭✭ correct horse battery staple
    Registered User


    Last few times I sold I just gave purchase and sales order/trade receipts/screenshots from a well known exchange to my accountant they sort out all that and fill my yearly return from all my income sources (rentals, savings, investments etc) and then I pay revenue whatever owed. I guess only advice is to let professionals deal with all that and be ones to communicate with revenue on your behalf. Oh and keep all copies of all trades, I lost count number of crypto business gone under over years, I doubt “I found a pile of bitcoins on old hard drive” would work these days as price went to the moon, last thing anyone needs is an audit


  • Registered Users Posts: 30 super ted rules
    Registered User


    Thanks for your reply!

    Having spoken to lots of different professionals, they can't point me to the guidance or law showing which methods are acceptable!


  • Registered Users Posts: 11,195 ✭✭✭✭ Lex Luthor
    Registered User


    unless you get absolute clarity, probably best to stick to the FIFO rule


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  • Registered Users Posts: 6,482 ✭✭✭ correct horse battery staple
    Registered User




  • Registered Users Posts: 30 super ted rules
    Registered User


    As I've been buying a small amount over a couple of years LIFO would be best for me. A friend has used pooling and there was no objection.

    It doesn't look like there's any clarity from Revenue.

    Seems like FIFO is assumed and the best approach if you want an easy life.


  • Registered Users Posts: 30 super ted rules
    Registered User


    An interesting alternative approach is to use wallet based tracking.

    Instead of taking a universal approach to FIFO, you could apply it to each individual wallet.

    This might help separate investment coins and trading coins.

    https://help.koinly.io/en/articles/3661351-cost-tracking-method-explained


  • Registered Users Posts: 37,387 ✭✭✭✭ Mellor
    Registered User


    There is no available information from Revenue to say what are the acceptable methods to calculate the cost of acquisition when calculating a loss or a gain with crypto.
    Yes there are.
    The assumption in the community is that First In First Out (FIFO) is appropriate, but it not clear if other methods are also acceptable.
    Not an assumption I would assume. There are massive guides for accounts covering this stuff. CGT is not new.
    There is no reference in the tax document linked above,
    That document is the the extent of revenues guidelines on CGT.


  • Registered Users Posts: 30 super ted rules
    Registered User


    Thanks for your reply Mellor

    I appreciate a huge body of work has already been carried out in more traditional asset classes to determine the correct method to determine acquisition costs. In my view, that work is ongoing for crypto and won't be clear for some time.


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  • Registered Users Posts: 37,387 ✭✭✭✭ Mellor
    Registered User


    In my view, that work is ongoing for crypto and won't be clear for some time.

    Crypto is currency. It's that simple from a tax point of view.
    No different to trading USD or GBP. A tax account should be well up to speed on the requirements, and revenue should have examples.


  • Registered Users Posts: 30 super ted rules
    Registered User


    According to Revenue cryptocurrencies are not functional currencies.

    Recently common law countries like England and New Zealand appear to have settled on cryptocurrencies are poperty. Irish courts are likely to take the same view, and I presume Revenue will too.


  • Registered Users Posts: 10,905 ✭✭✭✭ Bob24
    Registered User


    Revenue are pretty clear in saying that CGT calculation rules apply (which means FIFO except of a disposal is made within 4 weeks of acquiring the asset).

    This is what I have seen online on an tax accounting firm website as well (I posted the link in the taxation thread) and also the way Koinly does the calculations when you select Ireland as your tax residence.


  • Registered Users Posts: 10,905 ✭✭✭✭ Bob24
    Registered User


    An interesting alternative approach is to use wallet based tracking.

    Instead of taking a universal approach to FIFO, you could apply it to each individual wallet.

    This might help separate investment coins and trading coins.

    https://help.koinly.io/en/articles/3661351-cost-tracking-method-explained

    Don't do that, it isn't the way to works in Ireland. Koinly are mentioning this on their website as this is the law in some countries and they therefore have support it. But if you register with them and select Ireland as your tax residence they will (rightly) default you to "FIFO - Ireland" based on a global pool amongst all wallets.


  • Registered Users Posts: 30 super ted rules
    Registered User


    Bob24 wrote: »
    Don't do that, it isn't the way to works in Ireland. Koinly are mentioning this on their website as this is the law in some countries and they therefore have support it. But if you register with them and select Ireland as your tax residence they will (rightly) default you to "FIFO - Ireland" based on a global pool amongst all wallets.

    Thanks for your reply Bob, Koinly do default to the FIFO + 28-day rule for Ireland however they do not speak for Revenue. They might be the only crypt services that support the 28-day rule! It's very helpful.

    The wallet based cost tracking method might be acceptable by Revenue, there's no guidance either way. The wallet based cost tracking method is a simplified version of the specific identification method.

    Specific identification means that each time you dispose of a crypto asset, you are specifically identifying which specific unit you are selling.


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