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Crypto + staking + tax

tuff1

So seeing as more and more coins are implementing their own version of staking, I'm interested to know the tax implications of this.

Let's say, for example, coin X offers a 10% Staking return over a year. So you buy 1,000 X coins, a year later the staking matures and you have 1,100 X coins.

How is the above situation taxed? CGT? DIRT? Is it taxed at all if the coin isn't converted to fiat?

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Shamo

Staking is taxed as income tax. Each time staking returns are paid out (usually weekly or monthly) that's a taxable event and should be noted properly like you would if earning dividends.

Doesn't matter if it's paying out in crypto or fiat, same event applies.

I use cointracking.info for all that stuff. Not a tax professional but that's what I've been doing.

tuff1

Shamo wrote: »

Staking is taxed as income tax. Each time staking returns are paid out (usually weekly or monthly) that's a taxable event and should be noted properly like you would if earning dividends.

Doesn't matter if it's paying out in crypto or fiat, same event applies.

I use cointracking.info for all that stuff. Not a tax professional but that's what I've been doing.

Cheers

ZeroThreat

Shamo wrote: »

Staking is taxed as income tax. Each time staking returns are paid out (usually weekly or monthly) that's a taxable event and should be noted properly like you would if earning dividends.

Doesn't matter if it's paying out in crypto or fiat, same event applies.

I use cointracking.info for all that stuff. Not a tax professional but that's what I've been doing.

If it's regarded as dividends, would it not be subject to dividend withholding tax rather than income tax?

Shamo

ZeroThreat wrote: »

If it's regarded as dividends, would it not be subject to dividend withholding tax rather than income tax?

Maybe dividends was the wrong term as what you mentioned is above my knowledge level (dividend withholding tax). I simply have been putting it down as additional entry in the income tax returns (PAYE) as foreign income.

thegolfer

ZeroThreat wrote: »

If it's regarded as dividends, would it not be subject to dividend withholding tax rather than income tax?

Dwt is tax withheld, on the income. However, the income still subject to income tax at your prevailing rates.

Dwt is not the final liability to tax, same as DIRT is not the final liability when considering interest income.

Bob24

IMO this is completely unclear and something revenue would need to clarify (but it might be too small at this stage for them to be interested in it).

Depending on how you look at staking, one could argue this is interest (DIRT), income (income tax), or even capital gain (CGT) ... it is not a clear cut.

My view is that it is closer to interests paid on a savings account than the other two options. But at the end of the day the view which matters is Revenue's.

Shamo

Bob24 wrote: »

IMO this is completely unclear and something revenue would need to clarify (but it might be too small at this stage for them to be interested in it).

Depending on how you look at staking, one could argue this is interest (DIRT), income (income tax), or even capital gain (CGT) ... it is not a clear cut.

My view is that it is closer to interests paid on a savings account than the other two options. But at the end of the day the view which matters is Revenue's.

Disclaimer: not tax advice only my opinion

I'd be happy if it did turn out to be DIRT or CGT (I highly doubt CGT though) as its lower % than the higher income tax bracket it seems. Guess i'm playing it safe but I do have some reasoning behind it.

Staking seems to be used quite loosely as a term now like you said. It in my mind has generally been where you're doing a task and receiving income for that task in the form of payouts, similar to mining. Ethereum will soon replace mining with staking to validate the network.

Cosmos stakers run expensive virtual machines to validate the network, the more tokens they use to validate the network the more chance of more rewards. They can offset expenses with profits to report tax.
Cosmos delegators can "bond" their tokens to the Cosmos stakers which gives them less rewards but similar risk levels without the high expense as they don't have to run the VMs themselves.

Cosmos stakers are actively doing a task to receive income which is income tax (imo).
Cosmos delegators are still putting their tokens to work by assisting with validating the network but they are not actively doing a job so grey area possibly.

Then you have the likes of crypto.com where they say you "stake" a certain amount of MCO to receive benefits on the card, which is fine but no tax yet on that. They then give you 6% APR on the "staked" MCO tokens. Probably this could be seen as the grey area where it can be both DIRT or income tax, maybe even more towards DIRT.

Celsius offers % APR for depositing your tokens to earn interest and as far as you're concerned the tokens are just sitting there. Maybe more toward DIRT.

Bob24

Yeah that is one other problem, staking could mean different things.

Agree that "staking" to run a validator node on a POS blockchain is more like an income as it does involve actively taking part in running the blockchain. While "staking" on the likes of crypto.com (and some exchanges) which basically reward users simply for locking a deposit on their platform looks more like an interest payment (although it is not a clear cut: one could argue that by buying and locking MCOs on crypto.com you are actually providing liquidity for the company and being rewarded for it, akin to some type of investment).

Being perfectly blunt, I'd say that given how small a fish cryptocurrency staking is for them, Revenue probably doesn't care as long as the amounts are not massive and the person is paying in one of the categories. If amonts are large then their is probably an accountant involved who should dig into this further.

ZeroThreat

I just realised the other day that Steem had a hard fork and I received an equivalent amount of HIVE tokens for the steem I had in my wallet. This would probably fall under income tax I guess.

onlineweb

Currently staking MATIC, where you earn up to 50% rewards.

However if I decide to sell my holdings how do I distinguish between my investment and the MATIC I received for staking in relation to my end of year tax returns?

Bob24

onlineweb wrote: »

Currently staking MATIC, where you earn up to 50% rewards.

However if I decide to sell my holdings how do I distinguish between my investment and the MATIC I received for staking in relation to my end of year tax returns?

I don’t think you will find any official guidance on this, but *IMO* you are might be supposed to pay 2 taxes:
- DIRT on the earnings (i.e. interests) you are receiving (based one the euro value of those interests on the day they were paid to you.
- CGT on any disposal of your MATIC into euros, based on the FIFO logic as per defined in the CGT legislation, i.e. what defines what is being sold for the purpose of CGT is not whether you are looking at your principle or your interests, but at which date those coins became your property (regardless of them becoming your property as a result of a conversion from euros or as an interest payment).

But to be honest, this area is very much unclear I am don’t even thing Revenue would have an official stance on staking.

rapul

onlineweb wrote: »

Currently staking MATIC, where you earn up to 50% rewards.

However if I decide to sell my holdings how do I distinguish between my investment and the MATIC I received for staking in relation to my end of year tax returns?

Be the hokey! Where are u getting nearly 50%?!

onlineweb

rapul wrote: »

Be the hokey! Where are u getting nearly 50%?!

MetaMask

onlineweb

US Lawmakers Don’t Want Proof-of-Stake Networks to Get Overtaxed

https://www.coindesk.com/us-lawmakers-dont-want-proof-of-stake-networks-to-get-overtaxed?amp=1&__twitter_impression=true

onlineweb

Congressional lawmakers urge the IRS to craft proactive tax policy for crypto staking rewards

https://www.theblockcrypto.com/amp/linked/73937/congress-letter-staking-taxes?__twitter_impression=true

SkySter

onlineweb wrote: »

MetaMask

MetaMask is just the wallet. What Token/Smart Contract?

onlineweb

SkySter wrote: »

MetaMask is just the wallet. What Token/Smart Contract?

Google Matic staking.