Capital Gains And Crypto

boring accountant wrote: »

Most people who "trade" crypto are not really involved in a trade. There is a presumption in favour of profits derived from speculative assets to be chargeable to CGT. Each case will be unique but the burden of proof is on the taxpayer to substantiate their claim.



There is currently no precedent that I'm aware of where Revenue judged cryptocurrency profits to be derived from a trade so you'll struggle to find an accountant willing to advise a client to claim trading.


There have been rare cases where individuals trading shares have been given trading status (in the UK). In the ones I'm aware of, the person involved operated the trade through a company and had employees with the requisite professional expertise.


If you think you're carrying on a trade, you'll need substantial evidence to support it. Here's a non-exhaustive list:


Company memorandum of association stipulating how the business is to be carried out
Written business plan
Evidence of accountability and discipline, i.e. unconnected shareholders. If you are only accountable to yourself then it might be considered too casual.
A paper trail setting out the motive and rationale for entering each trade.



I hope your friends who have claimed their crypto gains as trading have good accountants and likely good lawyers. My gut tells me that the only way Revenue will accept the trading argument is if you beat them in court.

To add to this. Anyone who has claimed cryptocurrency profits as trading income would be best advised to contact their accountant for help in preparing an unprompted qualifying disclosure. This is when you voluntarily report an error on past returns. It can help to limit the penalties and surcharges that apply on the unpaid tax liability. If there are outstanding liabilities, the earlier you do this the better.

Emma2019 wrote: »

Well they disclosed it as Case I income. Nothing relating to the memorandums etc that you mentioned would apply as they are individuals and not a company.

Also, given the tax rate is higher on Case I than CGT, if anything they would have an overpayment, particularly if you include the €1,270 exemption.

If you look at the badges of trade there's a strong argument they would be considered trading:

1 The Subject Matter of the Sale - Assets which can be sold for trading purposes
2 The Length of Period of Ownership. - Short term with an intent to turnover rather than hold
3 The Frequency of Similar Transaction. - High frequency of similar transactions
4 Supplementary Work. - Research, tracking various cryptos etc
5 The Circumstances that Were Responsible for the Realisation. - in response to price fluctuations
6 Motive - Profit

I get your point that if they had set up a company and were trying to claim a 12.5% rate instead of the passive 25% rate that there might be an issue but I can see how Revenue can argue CGT doesn't apply in the hands of the individual.

It would be easier to claim trading as a company not harder. The tax rate has less effect as it is not a question of the rate it’s a question of law and fact. Being in a company provides a legal structure, you can record board minutes where you discuss trading and risk management strategies, financing, etc. You can accept outside investment which would prove accountability.

The badges of trade are just the beginning. You have a much higher bar to meet with chargeable assets as opposed to wasting assets as the presumption is in favour of CGT for the former.

But even taking one as an example:
Supplementary work, if asked, could you provide internal documentation to prove that you’re trading according to a strategy or particular set of rules? What are the internal consequences of you/an employee failing to follow the rules?

A former professional commodities broker in the UK had his claim for trading treatment disallowed because he was deemed to be too “casual” in his approach.

I see your point of view. I’ve done some research myself looking for ways to claim trading, but I see very little chance that a sole trader could claim it as the amount of documentation, activity and record keeping that would be required would be nigh impossible for one person to do while still committing themselves full time to trading.

Think of all of the functions of a hedge fund or investment firm. You would need to be performing most or all of them to reach that bar.

I could be dead wrong and someone might succeed in their claim. If that’s the case I’ll make a business out of helping clients to set themselves up as crypto traders. I think if I tried it now though I’d be sued into oblivion.

I would caution against it unless you have deep pockets.

Anj1813 wrote: »

Hello. What if Im mining crypto? When it will be taxable? In moment when received to wallet (every day or week), or on the end of taxable period in Nov? Or isnt taxable some how? Thanks.

Just shooting from the hip here, but I think it would be taxed as trading income in the period in which it was received. You will need to value it as at the date of receipt and deduct any costs of inputs, such as electricity, internet connection and capital allowances on equipment and that would be your taxable income for the year.

The liability would be due whenever your next income tax deadline is, i.e. 31 October 2021 for the 2020 tax year.

Do you think even using trading bots would fall under CGT instead of Income tax? Bots automatically perform hundreds of trades a day, but I guess the work involved is not much (just the set-up and some monitoring)