Tax on Bitcoin Profits

Selik wrote: »

Is this definitely correct? I always thought that if an asset it gifted it is deemed as acquired by the beneficiary at the asset price on the date of the transfer.

That’s generally correct. If I gift an asset to you, I’m treated as disposing of the asset at market value and charged to CGT on that basis, and you’re treated as acquiring the asset at market value. What you later dispose of the asset that’s the basis for calculating your CGT.

But if I make a gift to my wife, the CGT regime basically looks through that. There’s no charge to tax on my disposal to you, but when you later dispose of the asset they look straight through the gift to you at my original acquisition to find the acquisition cost and date.

sunrainmooncl wrote: »

Few questions:

What is the best way of tracking all the transactions I have done? I haven't done many but would prefer to use some tool that I input everything and it calculates what I owe.

Each disposal is a separate event, so you need to calcluate the gain or loss on each separately (which you can do from your transaction records). Then add up all your gains and losses for the year, subtract your annual small gains exemption of 1,270 euros, and the result is your net chargeable gain.

sunrainmooncl wrote: »

Second question.. if I bought 1 A-coin for 100 euro and it's value went to 200 euro (100 euro gain). I then bought 1 B-coin using 0.5 A-coin (1 B-coin = 100 euro) . . .

You've disposed of 0.5 of an A-coin. Acquisition cost 50 euros; disposal proceeds [equivalent of] 100 euros, so you have realised a gain of 50 euros.

sunrainmooncl wrote: »

. . . My assets now are 0.5 A-coin (100 euro) and 1 B-coin (100 euro).

Now if A-Coin and B-coin both drop to 50 euro I have main 0 gain in euro. Started with 100 and have 100 now. Do I still pay capital gains tax on the gain that I did benefit from by being able to buy B-coin?

Simple changes in value of an asset are not taxable events. A rise in value does not generate a capital gain; a fall in value does not generate a capital loss. There is no gain or loss until you actually dispose of the asset.

If you now dispose of your remaining 0.5 A-coin you will generate a capital loss - acquisition cost 50 euros; disposal proceeds 25 euros; capital loss 25 euros. You can set this against your 50 euro gain on the first disposal (assuming both disposals occur in the same year). If you also dispose of your B-coin that will generate another capital loss.

Shauny2010 wrote: »

If I have an exemption then so does my wife? And what about kids?
I'm just trying to figure out the best way to reduce the tax bill. I have a daughter 19 , & two sons 17 & 15 do they have an allowance? If so I could gift them the bitcoin too

Gifting to your wife is not the same as your kids; a disposal to the kids is treated as a disposal at market value.

Autochange wrote: »

Il pay the 30% as a dividend to myself.

Autochange wrote: »

They wont be getting a cent.

Now where have I heard that bravado BS before?

https://www.boards.ie/vbulletin/showpost.php?p=105595854&postcount=371

Autochange wrote: »

Last year revenue took 63 million euro from 69 people. Im neither a resident for tax purposes or anywhere remotely close to a substantial figure.

If you're not tax resident you're grand (from an Irish CGT point of view). Last year Revenue took 63 million euro from 69 people, they also took a whole lot more from a whole lot of the littler people, many of whom think they are too cute to be caught, 13 of them listed in today's SBP, lots listed every week.

Shauny2010 wrote: »

Their was no account connected to the coins, I bought them while I was doing a postgrad course off another student. It was a cash transaction.

Fair enough, Revenue will obviously want to know what the kids used to purchase their bitcoins, and possibly how they first became attracted to them in the first place

mnm22 wrote: »

Ok, hypothetical scenario here. I trade cryptocurrencies on a regular basis. My accountant has told me that regular trading of cryptocurrencies would be considered income taxed and not capital gain. . . .

In general, if you acquire an asset, and later sell it for more than you paid for it, the revenue regard that as a capital transaction, yielding a capital gain, which attracts capital gains tax.

However if you buy and sell assets with sufficient regularity and system, on a sufficient scale, then what you are doing ceases to be investment activity and becomes a trade. Your earnings from a trade are income, and are subject to income tax.

By way of example, if I buy a painting and later sell it for more than I paid for it, that attracts capital gains tax. But the art dealer from whom I bought it buys and sells painting all the time; he's in the business of buying and selling paintings. For him, they're not investments; they are his stock-in-trade. His earnings are classed as the profits of a trade, and they attract income tax.

The line between investment activity and a trade can be a blurry one, and in general taxpayers will seek to have their activities taxed on whichever basis yields the best results. For what its worth, the issue most often arises where someone has made significant losses on investments, and they want to have their investment activity treated as a trade so they can deduct the losses from the income earned in their "day job".

In the end what matters is not whether you think you are carrying on a trade, rather than investing, but whether the revenue thinks that. Obviously your accountant knows more about your affairs than we do, so I won't second-guess him. If he thinks the revenue would accept your dealings in cryptocurrency amount to carrying on a trade, then no doubt he is correct.

mnm22 wrote: »

If I paid up on the tax I owed and then moved abroad to a country with a different income tax rate I would be paying the tax rate there from then on right?

You'd be taxed according to the laws and practices of that country. They might not make the same investment/trade distinction that Ireland does, or if they do they may draw the line in a different place. The fact that your activity would be classed as a trade for Irish tax purposes if carried on in Ireland would be irrelevant to how the revenue authorities of the other country might treat you.

mnm22 wrote: »

As my income is not sourced in Ireland I would not have to pay tax here. Now my question is if I became a full time cryptocurrency trader and regularly traded cryptocurrency would I be liable to income tax or capital gains on my main source of income. According to my accountant regular training would be taxed at the 40 percent tax rate and not the 33 percent CGT rate so I could argue that my gains are income not CGT right?

If you are non-resident in Ireland, and if the Irish Revenue accept that your dealing amount to a trade, then you would not be liable to any Irish tax on your earnings from your dealings - for a non-resident, the profits of a trade carried on wholly outside Ireland are not subject to Irish income tax. However if they thought that your dealings were not a trade but were capital transactions, then you would be liable to Irish Capital Gains Tax for so long as you were classed as "ordinarily resident" in Ireland, which would usually be for three years after you ceased to be resident here.

gingerbreadman wrote: »

I have 50,000 in savings and i invest half of it in bitcoin and hold the other half of my investment money in Euro. The value of bitcoin increases and the value of my euro decreases. Can i offset the losses of holding euro against the profits i make on my bitcoin invextment?

No

Edit: How does the value of your Euro decrease, are you talking about inflation?

gingerbreadman wrote: »

I have 50,000 in savings and i invest half of it in bitcoin and hold the other half of my investment money in Euro. The value of bitcoin increases and the value of my euro decreases. Can i offset the losses of holding euro against the profits i make on my bitcoin invextment?

There's two answers to this question.

1. Euros are not an asset for CGT purposes - there's an explicit provision to this effect in the CGT legislation - so "gains" and "losses" arising on the "disposal" of an "investment" in euros are not taken into account for CGT purposes.

2. But the taxation of purely inflationary gains is nevertheless an issue. If I invest 10,000 euros in an asset, and sell it later for 11,000 euros, but over that period inflation has been 10%, in real terms my gain is nil, but I'll still be assessed to CGT on a gain of 1,000 euros. The CGT regime used to deal with this by providing indexation relief, so that only the real gain, after taking account of inflation, was taxed. However indexation relief could never be used to generate a loss; only to eliminate a gain.

Indexation relief was abolished in 2003. If inflation ever gets back to the levels we saw in the 1970s or 1980s, I'd expect pressure for its reintroduction.