If you are a crypto investor, you are surely interested in how your bitcoin is going to be taxed. As the rules around crypto taxes become more rigid, investors face the real risk of getting into trouble with tax authorities if they simply ignore these new rules. Bitcoin is the most popular cryptocurrency today, and the vast majority of crypto investors are using it.
In most countries, bitcoin is treated as an asset or property. Taxation agencies such as the IRS do not treat bitcoin as currency because it is not issued by any Central Bank. The classification of bitcoin as an asset means it has a peculiar taxation structure. If you buy, sell, or use the crypto to make purchases or swap it, you will generate capital gains tax. What is capital gains tax? Capital gains tax is the duty placed on the difference between the sale of an asset and its initial buying price.
Outside the US, cryptocurrency tax laws naturally vary depending on the country or region. They can vary from pretty relaxed to strict. In this article, we will discuss specific taxation laws in some of these areas. We will also briefly touch on general taxation laws and how they apply to bitcoin. This will be especially useful to you as a crypto investor if you are looking to hold your assets in a particular area where taxation laws are friendlier to your bitcoin.
General Taxable Bitcoin Events
Depending on where you are in the world, there are various activities and actions that could attract some form of tax on your bitcoin. We will be talking about the taxation specific to different regions in the next section, but in this section, we will simply touch on some general taxation occurrences. If you have performed any of the following activities with your bitcoin, you will have to pay tax on it.
- If you swap or exchange your bitcoin to fiat money, for example, the dollar, euro or pound, this becomes a taxable event.
- Trading bitcoin is also a taxable event. The fair market value at the time of the trade also has to be calculated so that it can be taxed appropriately.
- Earning bitcoin as a source of income is a taxable event. This also covers mining, receiving it as payment for services rendered or anything else that is considered payment.
- Using bitcoin as a payment method also attracts taxes. The value at the time of use should be calculated accurately.
We will now take a look at bitcoin taxation in different parts of the world and how they differ from one another.
In Canada, 50% of your bitcoin gains are taxable. On top of being taxable, the gains are added to your income for the year. For example, if you bought bitcoin worth $1000 and sold it for $4000, you would report a capital gain of $1500, which is 50% of your profits. This would be added to your income and taxed at marginal rates. It is important to consider that Canadian law requires you to record all the transactions you make with your bitcoin or any altcoins.
In Australia, virtual coins (as they are called) such as bitcoin and other altcoins, are taxed as assets. This is, in fact, similar to the way crypto taxes work in the US. Bitcoin is taxed based on the gains received at the time of disposal. Capital gain is calculated as the difference between the AUD (Australian Dollar) value at the time of disposition and the AUD value at the time of acquiring the bitcoin.
Note: Capital loss is always subtracted after capital gains have been calculated.
In Japan, although all profits generated from trading bitcoin fall under the Tax Income Act, individuals are expected to pay tax on their profits if their earnings surpass (Japanese Yen) ¥200,000 or (US Dollars) $1,200 per year. Taxable activities include trading your bitcoin for fiat which is a greater quantity than your initial investment, selling or buying bitcoin and receiving bitcoin including mining and as payment for services rendered.
Germany – No Capital Gains Tax!
In Germany, bitcoin is not taxed as property and so doesn’t incur capital gains tax. Bitcoin and other cryptocurrencies are generally considered “private money.” Any sales of bitcoin under 600 Euros are not taxable. As a bonus, if you hold your bitcoin for over a year, you are exempt from paying any tax at all! Germany is considered to be a cryptocurrency haven as the taxation laws are far more relaxed compared to many other countries.
The Bottom Line
In this article, we have covered some of the general taxation laws surrounding bitcoin. We have also discussed how bitcoin is taxed in a few specific countries. We hope after reading you are now at least a little bit more knowledgeable on the subject. If you are really on the hunt for a place to keep your bitcoin where taxation is laxer, you should carry out more independent research.
It is always best to contact crypto tax accountants when you are carrying out research related to paying your cryptocurrency taxes. Depending on your region, there may be different restrictions and nuances. A professional can guide you in paying your taxes more easily and within the confines of the law.
We hope you have found this article informative on the subject of bitcoin taxation around the globe. Thanks for reading and make sure to share the article with anyone who might need it!
Robin Singh is a cryptocurrency tax consultant based in the UK. He is also the founder of Koinly.io – a cryptocurrency tax solution that simplifies capital gains reporting in the US, Australia, Ireland, among other countries.
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