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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?

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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.

[Deleted User]

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.

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.

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.

dxhound2005

There was a thread about this last month.

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

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.

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

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.

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.

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?

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

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.

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.

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.

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.

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.

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...

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?

nuac

rogercross wrote: »

Any legal way around that?

Well somebody did move to Malta to legally avoid CGT.

rogercross

McG wrote: »

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

Any legal way around that?

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: »

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: »

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

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

rogercross

How would one go about reporting those kinds of profits?