Buying cryptocurrency with fiat or any “unrealized appreciation” is not a taxable event according to Thomas Shea, a cryptocurrency tax executive at EY.
Thomas Shea, cryptocurrency tax lead at EY Financial Services, told Cointelegraph that the taxability of cryptocurrencies is an evolving area and new regulations may be in place soon. “There is new legislation that will require reporting for at least some crypto transactions, and when those rules go into effect there will be significant changes,” Shea said.
The EY executive noted that with the growing popularity of cryptocurrencies, lawmakers are continually exploring how to generate revenue by taxing and regulating digital assets.
Shea adds that “We are seeing certain jurisdictions develop exclusive regimes, rates and reporting for digital assets. In the US, we are seeing that digital assets are subject to rules and reporting is generally limited to securities (and not property).”
While not many may appreciate the taxation of their crypto assets, according to Shea, understanding the changing tax impacts associated with cryptocurrencies is crucial. The tax expert advises that participants in the market be aware of the “scope of their transactions that will possibly trigger a taxable event and the associated reporting requirements.”
According to Shea, buying or selling cryptocurrency influences whether or not it is taxable. The purchase of cryptocurrencies with fiat and any unrealized appreciation are not taxable events. However, the tax executive notes that selling your crypto is a taxable event. It explains that “the gain or loss is generally of an equity nature” and this could be subject to tax.
Taxable Events and What to Do
The EY administrator notes that even if a holder exchanges their crypto for other assets such as Bitcoin (BTC) or Ethereum (ETH), this gives users a “taxable event” and they are required to report gains or losses on the discontinued crypto.”
The same goes for non-fungible tokens (NFTs). “If you bought an NFT with fiat, there is no taxable event,” says Shea. However, buying NFTs with cryptocurrencies is treated much the same as exchanging cryptocurrencies for cryptocurrencies. “Gross income minus your tax base on the asset, which typically includes all associated fees/costs,” says the crypto-tax expert.
The EY executive urges people to seek guidance from appropriate advisers once they are aware of their tax obligations.
“In an industry where technology serves as the architectural framework, having an advisor with a technological solution to go with you, as well as understanding of your goals, will allow you to make the best possible decisions to minimize your tax burden.”
What Happens Around the World
PWC published a global crypto-asset tax report in 2021, evaluating and reviewing key developments in digital asset tax guidance, which had an accelerated pace that year.
This report highlights that Liechtenstein, Australia, Malta, Germany, Singapore, Switzerland, and Hong Kong are the countries with the most comprehensive guidance regarding the taxation of crypto assets. The document also notes that one of the most important factors in determining how tax rules apply to cryptocurrencies is how they classify under local tax law. It is worth noting that almost all tax jurisdictions have issued a guide, where they view crypto assets as a form of property (intangible assets).
One example is Thailand, where cryptocurrency traders are exempt from the 7% value-added tax on licensed exchanges. Traders within the country will also be able to offset losses against profits annually.
Another example is the Indian government, which in February proposed a 30% income tax on crypto income. However, many opposed the proposal, as a 30% crypto tax is nearly double corporate tax rates, which hover around 16%.
The truth is that the whole world faces numerous challenges in regard to cryptocurrency transactions, and what is taxable.
In addition to tax and money laundering issues, it is necessary to consider the adaptation of civil, commercial, corporate legislation or the protection of personal data to the new business models that involve crypto assets.
It seems a priority, then, that countries have access to information on these operations.
By Audy Castaneda
