Crypto Gains & Losses

The Revenue Commissioners has recently outlined guidelines aimed at eliminating the uncertainty surrounding the taxation of cryptocurrency transactions.

  • Expenses

This is an area many of our tech sector contractors have investments in, and queries have recently become more common. Tax authorities across Europe are seeking ways to ensure they all get their cut of the profits!

No Special Treatment

The Guidance issued by Revenue attempts to clarify matters related to cryptocurrency taxation and mostly confirms that the existing regulations apply to the this sector. The document provides guidelines on the tax treatment of various transactions involving cryptocurrencies. Revenue are quite clear that the advisory recently published is to be used as a reference for tax purposes only, as it does not cover regulatory and other aspects.

Investments

An investment (as opposed to conducting your business) in cryptocurrency is looked upon by Revenue in the same manner that an investment in any other currency, stock or share would be. You will need to declare it for Capital Gains Tax (CGT) should you make an annual profit on disposals.   Per normal CGT rules, the annual exemption of €1270 still applies. Any profit you make above this figure will be taxed at 33% and it doesn't matter how much you earn (or if you make a loss), you will need to file a tax return each year.

Loss making investments can be “warehoused” for offsetting to reduce future capital tax liabilities.

Business Transactions

According to the instructions, direct taxes such as corporation tax, income tax and capital gains tax are applicable, but each case should be reviewed separately, according to the individual facts and circumstances. In general, businesses accepting crypto payments for goods or services should keep records of crypto transactions. No special rules have been introduced so far and taxable profits should be calculated according to the current tax legislation.

Where a company conducts its business transactions through a cryptocurrency, normal accounting and tax rules will need to apply, however the values at the end of an accounting period will need to be converted to Euro and are taxable under “normal CT rules,” the document states. The tax act clearly states that returns must be made in a functional currency, Crypto does not fall into this category just yet.

Revenue have also explained crypto income taxation, as well. “Profits and losses of a non-incorporated business on cryptocurrency transactions must be reflected in their accounts and will be taxable on normal income tax rules,” the notice reads. They have also informed taxpayers that gains, and losses incurred on cryptocurrencies are chargeable or allowable for capital gains tax if they accrue to an individual, or for corporate tax on chargeable gains for companies.

The Irish Revenue Commissioners point out that the value of bitcoin and other cryptos may vary between trading platforms. In the absence of a single exchange rate, a “reasonable effort should be made to use an appropriate valuation for the transaction in question,” the manual says, without detailing what “reasonable” and “appropriate” may mean in practice.

No instructions have been given on the taxation of incomes, profits and other flows related to initial coin offerings. The document issued by the Irish revenue service does not say anything about digital tokens and token sales.

Please note that the information above is of a general nature, and tax advice should be sought in all circumstances before entering any transactions.

The team at Icon Accounting are happy to assist - info@iconaccounting.ie 

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