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Crypto tax situation - Read post 1 for thread banned users

Gooey Looey

What is the tax situation?
I've started adding loose change towards crypto and have at times made some nice little earners along with building up some savings. I know I'm supposedly liable for capital gains tax if I turn a decent profit but I'll be leaving it as crypto, not looking to convert back into Fiat at this time.

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Peregrinus

Traditional securities can generate payments to the holders which may in some circumstances be in the nature of income - dividends, interest - and in some in the nature of capital - bonus issues. It's the nature of the payment that matters, not the form in which it is made. Where the payment is periodic, like interest and ordinary dividends, or where is represents a distribution of profit or earnings which are themselves income in the underlying enterprise, then it's of the nature of income. But where it represents a distribution of capital, then it is of the nature of capital. And, yeah, there can be grey areas and doubtful cases.

So, there's no a priori reason why payments made to the holders of crypto should necessarily be income, or necessarily be capital. They can by either, depending on the nature of the payment. Whether the payment is made in fiat, in crypto or in kind is unlikely to determine the issue; a much more relevant consideration is why the payment is being made and how it is being funded.

People arguing for particular (and invariably favourable) tax treatment for crypto always focus on the ways in which crypto differs from other investments. I suspect that this approach is driven by wishful thinking. If you're trying to work out what view the revenue will take of a particular transaction or event involving crypto, the better course is not to focus on the ways in which that transaction/event differs from transactions/events involving more conventional investments, but on they ways in which it resembles them. That's probably going to give you a better guide as to how the revenue will think.

Mellor

Bob24 wrote: »

Legal advice here stating that “Passive income derived from the staking or lending of crypto-assets would be subject to income tax rather than CGT (similarly to interest income or dividend income from conventional investments)”: https://doylekeaney.ie/news/crypto-assets-high-level-irish-tax-considerations/
.

Yes but traditional investments dividends and interest pay in FIAT. Subject to income tax as FIAT earnings.

But the occasion as that share holders are awarded bonus shares due to holdings. Those shares are not treated as income, they are subject to CGT under a recalculated acquisition cost.

If revenue insist crypto is a security. On what basis can they justify the above special treatment case.

Bob24

namloc1980 wrote: »

Is there a definitive Revenue view on the interest earned on crypto on the lives of Blockfi/Celsius?

Nope there isn’t unfortunately.

Legal advice here stating that “Passive income derived from the staking or lending of crypto-assets would be subject to income tax rather than CGT (similarly to interest income or dividend income from conventional investments)”: https://doylekeaney.ie/news/crypto-assets-high-level-irish-tax-considerations/

And also Koinly (which has an Ireland-specific tax engine for crypto transactions which they build based on legal advice here) are reporting BlockFi/Celsius/Crypto.com interests as liable for income tax on the tax reports they produce.

As you might have seen on the thread some posters will disagree and have different views, but I haven’t seen anyone posting more credible sources than the above 2 which would be addressing this specific point and stating something different. It would really be better if Revenue could clarify though as while those are opinions by tax professionals, they are not based on any official document. Saying that there is no specific tax rule for cryptocurrencies as Revenue have been doing really isn’t enough. It is all fine for basic stuff like CGT on simple purchases and disposals, but there are some things you can do with crypto which don’t always have a clear equivalent with other asset classes.

I guess someone could raise an inquiry on the Revenue website and ask, but based on previous experience I wouldn’t hold my breath for a clear answer (I suspect after weeks of waiting for an answer they would just come back with a vague statement which isn’t committing them to anything, along the lines of “there is no specific tax treatment for cryptocurrencies and the usual tax rules apply”).

namloc1980

Is there a definitive Revenue view on the interest earned on crypto on the lives of Blockfi/Celsius?

Mellor

actuallylike wrote: »

Maybe instead of bought, we should say swap. Say I swapped ETH for SUSHI on uniswap. afaik, I owe cgt on the difference of the ETH at the point of swap and the point from when I bought the ETH.

Yes. You have disposed of your ETH. A swap is basically a trade.

When I stake my SUSHI, I receive xSUSHI, not an NFT, a brand new ERC20 token. I don't see the difference between staking in this scenario and swapping on uniswap. They both result in a disposal of an asset, because I don't have the SUSHI anymore, I have a brand new independent token (xSUSHI).

Say after 6 months you decide to unstake. You get your sushi back.
Staking is not a disposal. You still own the sushi.

If cgt is not applicable at this point, what about if I swap my xSUSHI on uniswap (which I'm able to do). Say I swap.it immediately after staking. If my first paragraph is right, my gains since I obtained the xSUSHI is effectively nil, because I've just obtained it. Is that way to avoid the cgt on the SUSHI? Surely not.

A swap is a trade. If you immediately trade for xsushi, you don’t make a gain on the xsushi. So no CGT.
But you still have a sushi. Whenever you unstake and dispose you’ll owe CGT on gains.

I probably have to pay cgt on the gain from when I first bought the btc right?

Yes. We just discussed this in the other thread.
It’s liable for CGT. But swapping just enough to step under the allowance would mean acquisition costs increase without CGT liability.

actuallylike

Mellor wrote: »

So in that example, you bought sushi. Why would you not own it.

Thanks for the response, it really is uncharted territory so appreciate the input.

Maybe instead of bought, we should say swap. Say I swapped ETH for SUSHI on uniswap. afaik, I owe cgt on the difference of the ETH at the point of swap and the point from when I bought the ETH. My understanding of cgt is based on that so correct me if I'm wrong.

When I stake my SUSHI, I receive xSUSHI, not an NFT, a brand new ERC20 token. I don't see the difference between staking in this scenario and swapping on uniswap. They both result in a disposal of an asset, because I don't have the SUSHI anymore, I have a brand new independent token (xSUSHI).

If cgt is not applicable at this point, what about if I swap my xSUSHI on uniswap (which I'm able to do). Say I swap.it immediately after staking. If my first paragraph is right, my gains since I obtained the xSUSHI is effectively nil, because I've just obtained it. Is that way to avoid the cgt on the SUSHI? Surely not.

I guess my main issue is with swapping for items that are pegged in some way to each other. For example, I swapped some of my BTC for WBTC earlier in the year for use on Ethereum. They're pegged, but I probably have to pay cgt on the gain from when I first bought the btc right?

Mellor

Bob24 wrote: »

Agree Revenue should really clarify their position, but Koinly as well as a tax firm guidance posted on the thread before are saying this is subject to income tax.

Koinly has no bearing on the Irish tax though.
There’s literally a page on revenue describing now bonus shares/securities are retreated.

I can’t see how they can justify waiving that in regards to crypto so as to charge a higher tax. Revenue said there are no special rules for crypto.

The way I see it, the service you are providing is that you are lending your crypto to someone and in exchange they are paying you compensation for the service

That’s exactly how the entire banking system works. If that counted as a service for income, then term deposits, savings accounts should be subject to income tax. But they aren’t.

So if Revenue was considering the likes of Celsius and BlockFi as financial institutions paying interest on deposit accounts for the purpose of tax liabilities, DIRT would be due..

If they were to take that view they’d collect dirt on staking. And lose CGT due on the “deposits”. It’s one or the other.

Securities that attract DIRT are the likes of government bonds that pay interest.
Stock dividends are classed as income.

The parallel to crypto would be token/staking that paid interest in fiat - at in that case it wouldn’t attract CGT.

I assume income tax is >33% for most investers, so I wouldn’t be going out of my way to declare my holdings as crypto.

Bob24

Mellor wrote: »

I don’t think that’s correct.
Mining is subject income as it’s providing a service for payment. Agree there.

But staking/holding/depositing on a platform is not performing a service for payment. It’s just holding in a way that earns a reward.

The closest parallel would be bonus shares. Where holders of existing shares are rewarded bonus shares they are subject to CGT, not income tax.

Agree Revenue should really clarify their position, but Koinly as well as a tax firm guidance posted on the thread before are saying this is subject to income tax.

The way I see it, the service you are providing is that you are lending your crypto to someone and in exchange they are paying you compensation for the service (and depending on where you are staking, that compensation can actually be paid in the same crypto, in another crypto, or possibly in fiat currency so I think it is hard to argue this is capital appreciation of your existing asset - you are receiving something else).

Mellor wrote: »

Dirt is only payable with financial institutions. I can’t see how it could currently apply to crypto.

If an Irish tax resident has deposit accounts abroad and is receiving interests on them, they are meant to file a tax return and pay DIRT on those interests directly to Revenue (since the foreign financial institution wouldn't have deduced it at source). So if Revenue was considering the likes of Celsius and BlockFi as financial institutions paying interest on deposit accounts for the purpose of tax liabilities, DIRT would be due. But yes, I don't believe this is the case either - this is what I meant to clarify in my note explaining why I intentionally didn't used the word "interest" even though some platforms do use it (but again Revenue could at some point express a different view).

Mellor

Bob24 wrote: »

There is no CGT because you never disposed of anything, and there is income tax due on the reward amount you received.

I don’t think that’s correct.
Mining is subject income as it’s providing a service for payment. Agree there.

But staking/holding/depositing on a platform is not performing a service for payment. It’s just holding in a way that earns a reward.

The closest parallel would be bonus shares. Where holders of existing shares are rewarded bonus shares they are subject to CGT, not income tax.

I still think revenue has to solidify it that crypto is a security.

But it’s that’s their angle, they it should apply acrid the board. Can’t pick and choose imo.

It could also be called interest on some platforms but I am using the generic word reward on purpose, as to my understanding from Revenue's perspective this is subject to income tax rather than DIRT

Dirt is only payable with financial institutions. I can’t see how it could currently apply to crypto.

Bob24

actuallylike wrote: »

So it appears that staking returns is a kind of grey area, but is the action of staking itself taxed? Lots of tokens take this x model, where you deposit your token and receive an interest bearing token in return (e.g. Stake SUSHI, receive xSUSHI in return). It looks like it could be considered a swap of sorts.

I think "staking" is a grey area largely because it can mean different things depending on the token/platform which is using that word.

If it simply means that you are depositing your crypto somewhere, receiving a regular reward* for that deposit, and eventually recovering you principle then I think the situation is clear. There is no CGT because you never disposed of anything, and there is income tax due on the reward amount you received (based on the EUR fair value on the day you received each payment - i.e. it doesn't matter whether the payment is made in a different crypto than the one you deposited as long as the original capital remains untouched). I would say things like ETH 2.0 staking, Crypto.com staking rewards, Celsius interest rewards, etc all fall into that category.

Now if it means you are providing funds to a liquidity pool in cryptocurrencies and your cryptos are swapped and *replaced* by others, then it could possibly trigger CGT. It really is a new area and I don't think you will find specific guidance from revenue, but I think something like Uniswap Liquidity Pools fall in this situation (I am not familiar with Sushi but from what you mentionned I assume it works in the same way?).

* It could also be called interest on some platforms but I am using the generic word reward on purpose, as to my understanding from Revenue's perspective this is subject to income tax rather than DIRT

Mellor

actuallylike wrote: »

For example, I can borrow xSUSHI from protocols like AAVE using collateral that isn't SUSHI, so there is ways of obtaining xSUSHI without having SUSHI.

There are many ways to obtain tokens and coins. But your example didn't involved those other ways, you said;

actuallylike wrote: »

So, if I bought SUSHI at $2...

So in that example, you bought sushi. Why would you not own it.

I can also swap my xSUSHI for something other than SUSHI, which looks like another disposal of an asset.

Of course you can. You can trade for another token, or for fiat. From when you own it it's treated like any other asset you own.
But that's outside of the scope of the question about staking.

actuallylike

Mellor wrote: »

I’d say no as you still own the SUSHI. It’s never disposed of.

I don't think I do own the SUSHI though, xSUSHI and SUSHI are two different ERC20 tokens, albeit someway pegged to each other?

For example, I can borrow xSUSHI from protocols like AAVE using collateral that isn't SUSHI, so there is ways of obtaining xSUSHI without having SUSHI.

I can also swap my xSUSHI for something other than SUSHI, which looks like another disposal of an asset.

Mellor

I’d say no as you still own the SUSHI. It’s never disposed of.

actuallylike

So it appears that staking returns is a kind of grey area, but is the action of staking itself taxed? Lots of tokens take this x model, where you deposit your token and receive an interest bearing token in return (e.g. Stake SUSHI, receive xSUSHI in return). It looks like it could be considered a swap of sorts.

Is this transfer of assets considered a taxable event as it appears you're disposing of an asset (the SUSHI) .

So, if I bought SUSHI at $2 and then started staking it when it was $15, do I now owe tax on the $13 gain? If so, it makes DeFi completely unusable if there's a huge tax for nearly every token movement within defi.

Bob24

meanpeoplesuck wrote: »

Thanks Bob.

That's exactly what I was asking about.

So it's possible to sell a portion of your crypto, pay your taxes, and be fully compliant. But you still have the rest of your holdings untouched.

Appreciate the information!

No worries.

Yes for sure. If you are only selling a portion of your holdings, you only pay CGT on that portion.

The FIFO rule applies to match what you are selling with what you had bought in the past and calculate your gains (except if you are buying and selling within 4 weeks in which case there is an exception).

And for your reference if you have ETFs the exit tax is due every 8 years no matter what (even if you aren’t selling anything). This is a crazy tax but that’s the law.

meanpeoplesuck

Thanks Bob.

That's exactly what I was asking about.

So it's possible to sell a portion of your crypto, pay your taxes, and be fully compliant. But you still have the rest of your holdings untouched.

Appreciate the information!

Bob24

meanpeoplesuck wrote: »

Does the "8 year rule" apply to crypto in Ireland?

Eg. If you bought BTC in 2013, you'd have to pay CGT of 33% on all of it in 2021 even if you only want to sell a tiny amount?

I assume you are referring to the deemed disposal and exit tax legislation?

If yes, the tax is actually 41% every 8 years even when you don't dispose of the asset. But it only applies to mutual funds and ETF type of products.

I.e. not to individual crypto holdings. It would only apply of you bought shares in a fund/ETF/ETP/ETN filled with crypto and which is domiciled in the EEA (there are now some, but they wouldn't have existed 8 years ago).

Mistermu

Bob24 wrote: »

If he is still working here, he definitly is a tax resident (or ordinarily resident). But this isn't the only deciding factor.

I don't want to give direct tax advice and your friend should satisfy himself that he understands the tax rules and act accordingly, but the following quotes from this document should give directions (as you can see, being "domiciled" in Ireland or not does make a difference):

Has anybody been in touch with a tax advisor in relation to the remittance basis of taxation being applicable to cryptocurrencies for non domiciled residents?

Peregrinus

Mellor wrote: »

The account that purchased the crypto may no longer exist.
It's not unreasonable to aggregate all purchases into on exchange or wallet. If you closed an old account, records may be lost.

That's true.

In which case, if you paid real money to acquire your crypto and want to treat that as a cost of acquisition to reduce your CGT liability on eventual disposal, for the love of God print off and keep a full transcript of your account before you close it. The Revenue are not going to deal sympathetically with a taxpayer who has no records of his acquisition costs because he deleted them.

Mellor

Peregrinus wrote: »

... presumably you have an account with a crypto exchange or other intermediary, and a record of your transactions on that account can be generated.

The account that purchased the crypto may no longer exist.
It's not unreasonable to aggregate all purchases into on exchange or wallet. If you closed an old account, records may be lost.

Peregrinus

jonny_b wrote: »

If you can't provide receipts say for instance you invested €500 and made a profit of 60k. You knew it was a €500 investment but we're happy to pay the 33% CGT on the €60500. Is that what would generally happen if you can't provide proof?

Unlikely with a crypto transaction that you couldn't produce any documentation to corroborate your story of how you acquired the crypto - presumably you have an account with a crypto exchange or other intermediary, and a record of your transactions on that account can be generated.

But, hypothetically, if you have sold an asset for €60k, claim that you acquired it for €500, and have no evidence to corroborate this, they are likely to accept your story, because this is clearly not a story invented to minimise your tax liablity. If your claim was that you acquired it for €50k, now, and so only have a €10 gain, they'll give you a hard time.

Mellor

jonny_b wrote: »

If you can't provide receipts say for instance you invested €500 and made a profit of 60k. You knew it was a €500 investment but we're happy to pay the 33% CGT on the €60500. Is that what would generally happen if you can't provide proof?

If you couldn't prove it wasn't just sent to you or inherited somehow.
Then you might have to declare there lot as a gain.
20,000 vrs 20,165 owing. I wouldn't be spending too much of my time fighting it

jonny_b

Bob24 wrote: »

I am not sure at all, but I think they might have a problem as if you are selling 60000 worth of BTC but can’t prove when/how you obtained it, they could suspect that you’re involved in money laundering or that you received the BTC as a way to dodge other taxes (for exemple income tax or VAT - someone could have handed those BTC to you 2 weeks ago as a payment for some job you did for them and behind the back of the taxman).

I assume that if you are engaging with them and being upfront they’ll figure out something though.

Nah I used koinly there thank OP. No CGT liable well at least not yet. That was just an example I used. Waiting for theta to rise to be liable for CGT lol

Bob24

jonny_b wrote: »

If you can't provide receipts say for instance you invested €500 and made a profit of 60k. You knew it was a €500 investment but we're happy to pay the 33% CGT on the €60500. Is that what would generally happen if you can't provide proof?

I am not sure at all, but I think they might have a problem as if you are selling 60000 worth of BTC but can’t prove when/how you obtained it, they could suspect that you’re involved in money laundering or that you received the BTC as a way to dodge other taxes (for exemple income tax or VAT - someone could have handed those BTC to you 2 weeks ago as a payment for some job you did for them and behind the back of the taxman).

I assume that if you are engaging with them and being upfront they’ll figure out something though.

Donegal1234

jonny_b wrote: »

If you can't provide receipts say for instance you invested €500 and made a profit of 60k. You knew it was a €500 investment but we're happy to pay the 33% CGT on the €60500. Is that what would generally happen if you can't provide proof?

Just use https://koinly.io/ which I use.Recommend by the revenue aswell. Can login with your Coinbase account.

jonny_b

If you can't provide receipts say for instance you invested €500 and made a profit of 60k. You knew it was a €500 investment but we're happy to pay the 33% CGT on the €60500. Is that what would generally happen if you can't provide proof?

timeToLive

Mellor wrote: »

If you ever get audited, you need to show the actual transactions.

Nope.

The FIFO rule suspended for assets bought and sold within 28 days. Precisely for that reason.

Bob24 wrote: »

As Mellor said, if the same asset is acquired and disposed of within 4 weeks, FIFO does not apply.

See section 6A.3.1 here: https://www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-19/19-04-06a.pdf

See if you buy BTC and instantly convert it to something else (i.e. the BTC price hasn’t had time to change), then you can’t possibly have any CGT liability and your “old” BTC from a year ago still represent a gain to be realised in the future.

Thank you!!

Bob24

timeToLive wrote: »

And to add to this.. I think* if you bought BTC a year ago and then buy some more BTC and instantly convert it to something else, your tax liability is based on the first bitcoin you bought and the profit from that (FIFO - first in first out)

* I'm not an accountant so could be wrong

As Mellor said, if the same asset is acquired and disposed of within 4 weeks, FIFO does not apply.

See section 6A.3.1 here: https://www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-19/19-04-06a.pdf

So if you buy BTC and instantly convert it to something else (i.e. the BTC price hasn’t had time to change), then you can’t possibly have any CGT liability and your “old” BTC from a year ago still represents a gain to be realised in the future.

Mellor

Rob2D wrote: »

I reckon if you just record it in your portfolio as x amount of €'s for x coin and don't bother mentioning the BTC bridge at all, then the revenue won't ever know or even care.

If you ever get audited, you need to show the actual transactions.

timeToLive wrote: »

And to add to this.. I think* if you bought BTC a year ago and then buy some more BTC and instantly convert it to something else, your tax liability is based on the first bitcoin you bought and the profit from that (FIFO - first in first out)

Nope.

The FIFO rule suspended for assets bought and sold within 28 days. Precisely for that reason.

timeToLive

Bob24 wrote: »

Yes in a the specific scenario whereby you acquire BTC and *immediately* convert that exact amount into another crypto (i.e. the price of BTC hasn't changed between both transactions), you don't have any CGT liability as there was not profi (you are still meant to report that transaction to Revenue though, as even though there was no gain it is a disposal).

However, if we are talking about BTCs which were purchased months or years ago and which are being converted into another crypto today - this would trigger a CGT liability for 2021.

EDIT: removing some info in this post as the following two posters have the correct information