Tax treatment of cryptocurrency

What is a cryptocurrency?

Before discussing the tax treatment of cryptocurrency, let’s have a quick recap on what cryptocurrency actually is.

A cryptocurrency is a digital or online currency which only exists in electronic form. There are no physical notes or coins. Cryptocurrencies are created by a process called data mining (very complicated computer stuff!). They use a blockchain to create a public record of transactions. They are not regulated and no one person controls them. At this stage, you will probably have heard about the highs and lows of holding crypto – the value is very changeable.

Tax treatment as an investor

Revenue treat crypto in the same way as any other investment that you might make . Every gain made from a cryptocurrency must be declared to Revenue and is chargeable to Capital Gains Tax at 33%. These rules apply even where you are exchanging one cryptocurrency for another or if you have not withdrawn any cash proceeds on selling.

What is Capital Gain Tax (CGT)?

CGT is the tax you pay on any profit that you make when you dispose of an asset. The chargeable gain is taxed – not the full amount that you receive from the sale. The chargeable gain is the difference between the sales proceeds and the price you paid for the asset less any allowable expenses. Allowable expenses include any money spent by you to add value to the asset or costs incurred by you on acquiring or disposing of the asset.

An individual gets a personal exemption of €1,270 each year. The personal exemption is deducted from the chargeable gain to give the taxable gain. The taxable gain is taxed at 33%. You have made a disposal for CGT purposes if you sell, gift, exchange or transfer the asset.

If you make a loss on disposing of a cryptocurrency, you can deduct this loss from any chargeable gains you make in the same tax year. If you cannot use those losses in a current year, you may be able to carry them forward or transfer to your civil partner or spouse.

CGT Rules

The deadline for paying and filing a CGT return depend on when you disposed on the asset.

*It is important to note that your payment for CGT is due before the return*

If you dispose of an asset between 1 January and 30 November, payment is due by 15th December. Your return is due by 31 October in the following year.

If you dispose of an asset between 1 December and 31 December, payment is due by 31st January in the following year. Your return is due by 31 October in the following year also.

You pay your CGT through your ROS account or Revenue MyAccount if you are registered for CGT. If you are not registered, you must register. The Revenue paper is here and you can find other relevant tax articles on my blog.

This is the correct treatment for anyone investing in cryptocurrency as an investor. If you are trading cryptocurrency as part of your business, normal income tax rules apply.

Disclaimer: This post does not constitute financial advice and is for information and educational purposes only. This blog does not constitute an accountant/client relationship.