Simply put, a cryptocurrency is an online currency. Bitcoin and Ethereum are some of the most notable cryptocurrencies. Like any type of currency, cryptocurrencies attract investors from around the world who are hoping to earn a profit.
While it is rare that you will find the Government or Revenue recognising or even discussing cryptocurrency, there is still a tax obligation for anyone who invests in it.
An investment in cryptocurrency is looked upon by Revenue in the same manner that an investment in any other currency, stock or share would be. If you are making a profit through the disposal (selling, gifting or exchanging your asset) of your cryptocurrency, you will need to declare it to Revenue for Capital Gains Tax (CGT).
Fortunately, the first €1,270 of your cumulative annual gains (after deducting expenses and losses from other cryptocurrency investments – further details below) are exempt from tax. But, any profit that you make above this figure will be taxed at 33% and you will need to file a tax return each year.
You may still need to file a tax return even if you are certain no tax will be due (because of reliefs or losses).
If you are self-employed, you can include your CGT liability on your Form 11. If you make a disposal between 1 January and 30 November you must pay CGT by 15 December of the same year. And, if you make a disposal between 1 – 31 December, you will have to pay your CGT by 31 January of the following year.
It is advisable to keep a detailed log of the relevant dates and values for each investment and disposal that you make. The more detail you can keep, the better.
Revenue will require a number of details about your investment including:
- description of asset
- sales proceeds
- cost of acquisition
Every single gain you make from a cryptocurrency disposal must be declared to Revenue.
Making a loss
Due to their extremely volatile nature, making a loss from your cryptocurrency investment is a possibility. Even if your investment results in a loss, you will still need to file a tax return.
For example, if you have made an investment in Bitcoin which resulted in losses, and a separate investment in the same year in Ethereum which earned you a profit, you can use the loss from the Bitcoin investment to offset the capital gain you made through Ethereum. You can also use losses against a capital gain made in later years.
Deductions
There are a number of allowable deductions that can be made to reduce a cryptocurrency tax bill including:
- The cost of purchasing the asset
- costs (for example, fees paid by you to a solicitor or auctioneer) when you acquired and disposed of the asset
- costs associated with mining the cryptocurrency (if you are mining cryptocurrency, you will first be liable to pay income tax. The cost of the asset at the date of receipt will then be the base cost for CGT. You can deduct any expenses incurred from mining such as the cost of electricity and video cards etc)
You can also adjust the purchase price and enhancement expenditure for inflation.
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