Cryptocurrency – Digital Gold
It brings back memories of the 1980s and the stock market crash, with everyone being an expert and everyone going to make their fortunes.
Cryptocurrency was one of the biggest buzzwords of 2017 and for many it has been a rollercoaster of a ride. Most of us, of course, don’t even know what it is, if its real, if it’s safe, or if it’s a pyramid scheme. But:
As a currency
If you bought cryptocurrency to use as currency, you may be surprised to find out that for tax purposes the IRD has ruled that cryptocurrency is to be treated as property, not currency. What this means is foreign currency gain or loss provisions do not apply.
If you accept cryptocurrency as payment for goods or services, this is a barter transaction and needs to be treated as business income.
As an investment
Bitcoin and similar cryptocurrencies generally don’t produce an income stream or provide any benefits, except when they’re sold or exchanged. This strongly suggests that cryptocurrencies are acquired with the purpose to sell or exchange them. Consequently, whenever cryptocurrency is exchanged or disposed of, any realised gain or loss needs to be recorded at the time it occurs.
As a miner
So, you worked out that the benefits of mining cryptocurrency outweighed the power costs to produce them, but now the tax man is going to come and take a slice of the profit.
Because mining is generally aimed at making a profit, any mining- related fees or rewards are taxable income.
All of this means that you will need to keep good records, including transferring between different crypto exchanges and the values at each point.
If you have any questions about how you should treat your cryptocurrency, please contact your local BDO adviser.