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Cost of acquisition calculations

  • 02-02-2021 3:00pm
    #1
    super ted rules
    Registered Users Posts: 31 ✭


    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

  • #2
    rapul
    Registered Users Posts: 1,038 ✭✭✭rapul


    Hmm, it's a trap.


  • #3
    super ted rules
    Registered Users Posts: 31 ✭super ted rules


    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.


  • #4
    super ted rules
    Registered Users Posts: 31 ✭super ted rules


    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!


  • #5
    Lex Luthor
    Registered Users Posts: 11,220 ✭✭✭✭Lex Luthor


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


  • #6
    super ted rules
    Registered Users Posts: 31 ✭super ted rules


    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.


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  • #7
    super ted rules
    Registered Users Posts: 31 ✭super ted rules


    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


  • #8
    Mellor
    Registered Users Posts: 39,013 ✭✭✭✭Mellor


    super ted rules wrote: »
    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.


  • #9
    super ted rules
    Registered Users Posts: 31 ✭super ted rules


    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.


  • #10
    Mellor
    Registered Users Posts: 39,013 ✭✭✭✭Mellor


    super ted rules wrote: »
    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.


  • #11
    super ted rules
    Registered Users Posts: 31 ✭super ted rules


    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.


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  • #12
    Bob24
    Registered Users Posts: 10,905 ✭✭✭✭Bob24


    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.


  • #13
    Bob24
    Registered Users Posts: 10,905 ✭✭✭✭Bob24


    super ted rules wrote: »
    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.


  • #14
    super ted rules
    Registered Users Posts: 31 ✭super ted rules


    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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