We have written in the past about how you can report when you receive payment VIA crypto or how you can report trading profits/losses with crypto. Rather simply, Crypto is treated like any other asset, and is generally regarded as a CGT asset.
A CGT event occurs when disposing of cryptocurrency. Events can include:
Selling cryptocurrency for a fiat currency
Exchanging one cryptocurrency for another
Gifting it
Trading it
Using it to pay for goods or services.
Investing in cryptocurrency
Most people hold cryptocurrency as an investment, which they hope will grow in value over time to give them capital gains.
Each cryptocurrency is a separate asset for CGT purposes. When your client disposes of one cryptocurrency to acquire another, they are disposing of one CGT asset and acquiring another CGT asset.
If your client holds cryptocurrency for 12 months or more, they may be entitled to a 50% CGT discount to reduce any capital gains made when they dispose of it.
Trading cryptocurrency
The nature and purpose of their activities
The repetition, volume and regularity of their activities
Whether they have a business plan and their activities are organised in a business-like way.
If you are considered to be a crypto trader then trading stock rules apply, rather than the CGT rules
Gifting cryptocurrency
If you either gift cryptocurrency or receive it as a gift, they need to be aware of some basics.
Gift cryptocurrency, your clients are disposing of it, which is a CGT event and may have tax consequences
Receive cryptocurrency as a gift, there are no CGT requirements until they dispose of it.
Either way, your clients need to keep records of all transactions, including the date it was given or received and the market value at that time.
Cryptocurrency as a personal use asset
Most cryptocurrency is used to earn a profit, either through income or through capital growth, so it’s unlikely that most people would genuinely satisfy the personal use asset exemption.
Avoid errors
Follow these tips to avoid common errors
Report capital losses in the same year they occurred – carry forward net capital losses to later income years to offset future capital gains.
When transferring cryptocurrency from one wallet to another, it is not considered a CGT disposal if ownership and control of the coin is maintained.
Get the cost base right by including things like brokerage fees, transfer costs, platform costs, borrowing expenses, interest on loans and legal fees.
Keep records