Tax Implications on Cryptocurrencies

Lewis Milne:

Hi, my name is Lewis. I’m with Jenny today. We’re talking about the tax implications of cryptocurrency. So, cryptocurrency is just a online currency, which is independent of the bank and it’s basically like a blockchain supply.

Jenny Dutosme:

Yeah. I know that recent events have definitely made cryptocurrency something that a lot of people get into. There’s a few different platforms that people use to trade cryptocurrency. And it’s really important to have solid records when you do get into that, just because when you buy and then sell your currency a capital gains tax is triggered. So, as I mentioned, when you buy and then sell that currency, that capital gains tax occurs. So, this isn’t limited to just the buying and selling, it could also be swapping of those currencies for another. Lewis can tell you a bit more about that.

Lewis Milne:

Yeah, so when you’re swapping currency, so say if I swap Bitcoin to Ethereum, that would trigger a CGT event and I’ll get taxed on those capital gains. Obviously, with the capital gains, if you have held Bitcoin for over a year, then you would get that discount still with that swap. However, even though you aren’t actually selling the crypto, you still would get taxed on that swap. And same thing would happen if you then swap that to Dogecoin, you’d get taxed on … at that time, you’d get taxed accordingly.

Jenny Dutosme:

Yeah, so basically, that is because you are disposing one asset for another. Although you didn’t pull the money out as such, it is still sort of disposing that asset for another one. So, that is when you would consider CGT. Now, as we mentioned, it’s really important to keep those records. We’ve had some sort of experience with clients who have done quite a bit of trading in cryptocurrency, and sometimes it can be really hard to track those cost base. 

Lewis Milne:

Yeah, online, there’s a website called Koinly. So, most of the time when you are selling your crypto, you can get a Excel spreadsheet, which has all your buyers and sellers throughout the year. If you update that onto Koinly, then that will tell you your capital gains over that year. So that is a good way, you can buy subscriptions for that. I think if you’ve done a thousand transactions over a year, it cost about $99 and they will work out the capital gains.

Jenny Dutosme:

Perfect.

Lewis Milne:

… for a normal person doing that-

Jenny Dutosme:

Yeah.

Lewis Milne:

… manually, that would take you a good day or two. So Koinly is a great one, just to track all your capital gains and losses throughout the year. Obviously, you need to keep the records in order to use Koinly, but no, that is a great online forum to do it.

Jenny Dutosme:

So now we have talked about capital gains, but it is treated differently if you were to do it through a business, so do you want to …

Lewis Milne:

Well, obviously, I can’t just say I’m doing it through a business if I’m trading once or two times a day. But if you actually set up a business name, you set up a bank account, you’re doing a high volume of transactions, then you can say you’re running through a business. And then it’s not treated as a capital gain, it’s treated as income. So if you were a sole trader, this would just become income under your marginal rate, depending on your income for the year. If you were to do it through a company, obviously, there’s other things that you need to do, like set up the company, but then you would be taxed at of that rate of 26%, which companies are taxed at.

Jenny Dutosme:

Yeah. Perfect. And just the last thing that we’re going to talk about today is chain splits. So if, for instance, Bitcoin was to split into two different currencies, that would not trigger a capital gains tax up until you dispose all of the asset that you get from the split, and the cost base for the split would be zero. So you just got to make sure that you do keep track of that.

Lewis Milne:

I think, in summary, just got to make sure that when you come to the end of the year, you do have all your details of your trades throughout the year, otherwise it can become a bit of a nightmare working out those couple capital gains.

Jenny Dutosme:

Yeah.

Lewis Milne:

But yeah, obviously, we’re always happy to take your call if you have any further questions on this, and yeah, hope you guys have a great day.