A crypto tax is any tax imposed on cryptocurrencies. It’s not the same as a regular capital gains tax or income tax. It includes taxes imposed by countries and other organisations such as stock exchanges and bitcoin mining pools. Bitcoin has seen a significant growth in value over the past few years, with investors realising that it’s possible to make money from this currency – but are they ready for their profits to be taxed? If you own bitcoin, then you need to know how to pay crypto taxes in order to avoid fines, penalties or worse.
Who is affected by crypto taxes?
Anyone that owns, controls or benefits from these currencies is potentially exposed to crypto tax. At the moment, not all countries tax cryptocurrencies at a rate comparable to the national currency (in some cases much higher). Without a clear taxation policy, you must obtain expert legal advice and conduct your own due diligence before purchasing cryptocurrencies. If you buy bitcoin or other cryptocurrencies in another country, you could be subject to double-taxation if you sell back into your home country and are subsequently taxed at the same rate as any other income. This could result in severe financial penalties.
Who will tax cryptocurrencies?
Cryptocurrency exchanges and bitcoin mining are two of the biggest industries in the digital currency space. While mining is a completely decentralised process, there are many opportunities for third parties to profit from it. The laws surrounding these activities vary from country to country and criminal control over them should be a priority for any government officials.
Are cryptocurrencies taxable?
Cryptocurrencies are taxable as held assets, i.e. securities or shares under the 2003 OECD Base Erosion and Profit Shifting (BEPS) project. However, there is no guidance on how crypto taxation should be enforced at this time (due to the relative infancy of its usage). Professional advice is therefore essential.
Does mining bitcoin or other cryptocurrencies constitute taxable income?
Yes, it is an activity that makes a profit under the National Instrument 51-102 and falls into the category of ‘other business income’.
Are there any exemptions from crypto taxes?
Legislation in certain countries has made cryptocurrency investments exempt from taxation. For example, in October 2017, South Korea made cryptocurrency trading exempt from capital gains tax. However, this could change at any time and investors must keep up-to-date with all legislative changes. Cryptocurrency exchanges are also required to report profits to tax agencies and have their own internal regulations for doing so. Also, some countries have made specific exemptions for cryptocurrencies: South Korea and Japan both exempt some or all bitcoin transactions from value-added tax (VAT) and Switzerland has granted a partial tax exemption to crypto transactions.
Canada introduced a tax on cryptocurrency credit programs for bitcoin miners in 2014, but the rules have since changed. Developers, miners and users of bitcoin are now subject to a 9% Goods and Services Tax (GST), which is a federal tax charged on most goods and services sold in Canada.
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