Skip to main content

Ripple, Ethereum or Litecoin by James Nott

By February 13, 2018News

Do you know anything about Ripple, Ethereum or Litecoin?

These are cryptocurrencies, which now number in the hundreds, the most well-known being Bitcoin.

If you hold these currencies, it is important to know what the income tax rules are.

The tax implications depend on the circumstances of you holding and dealing with them.

If you make regular transactions buying and selling bitcoin it is likely that you would be designated as a trader and be conducting a business. You would be required to bring to account the value of any bitcoin on hand at the end of the income year (cost or market value), and any profit would have to be included in your assessable income. If you make a loss you may not be able to offset any losses against your other income if the activities are shown to be non-commercial.

If you make a few isolated Bitcoin purchases with the intention of making a profit then again any profit would be taxable in the year in which the bitcoin was sold.
Say you like the idea of Bitcoin as an investment and acquire some as a long-term investment. The profit on any sale will be taxable, but as a capital gain. Provided you hold the Bitcoin for at least 12 months the gain will be able to be discounted for tax purposes by 50%.

Another possibility is that you consider that the Bitcoin is a personal use asset. Buy a Bitcoin on this basis, and there aren’t any Capital Gains tax consequences on any sale if the cost is less than $10,000. However, if you make a loss on selling your personal asset, you won’t be able to deduct the loss from any Capital Gain you realise on the sale of shares or property.

Finally, if you receive bitcoin for goods or services you provide as part of your business you need to record the value of the bitcoin as part of your income.