Disclaimer
Crypto Tax Calculator is an online tax tool to help users organise and convert transactions to make the tax process easier. We are not a registered accountant and do not know your individual circumstances so cannot provide individual tax advice, if you are in doubt consult a tax professional. The guide provides our interpretation of the laws that we have built into the product, unfortunately, with crypto laws being so new and ever-changing there is room for different interpretations. If you believe the calculations we have used are too conservative we advise you to seek formal tax advice.
Introduction
There has been some guidance from the government and Revenue as to how cryptocurrency is taxed but the essential elements are that the guidance falls back on common Irish tax law. As such users could be subject to three main taxes - income, corporation and capital gains, on the other hand, the government has stated that crypto is exempt from VAT at this stage.
Importance Of Keeping Records
While some crypto enthusiasts consider Bitcoin and other cryptocurrencies currency the legality of this is questionable. Most governments including to an extent the Irish government treats crypto as an investment or property you own. What this means most importantly is that you must keep records in a fiat currency such as the euro, and you must keep all records in a single currency.
Any transaction you’ve made must be submitted not in Bitcoin or Ethereum but Euros, this process is fairly simple if you have made a few trades between Euros and Bitcoin but as soon as you start trading between cryptocurrencies or using more than one exchange you will need to convert all these into a singular currency. This can be a tedious process by hand but can be automated by tax software.
Capital Gains
The standard capital gains tax of 33% applies to crypto as well, if you are an individual and not a corporation the first €1,270 of capital gains are exempt. However, this exemption amount includes capital gains and losses as a whole you have made throughout the year in a variety of asset classes, not just crypto. So, you have to balance your gains or losses in crypto against the rest of your portfolio.
Calculating your capital gains for crypto is where it gets a little trickier compared to real estate or stocks. If you were trading stocks you would either buy or sell a share for euros. In crypto, you can make a trade between euros and Bitcoin but you can also trade bitcoin for Ethereum and then trade that for DAI.
For example:
- You purchase 100 units of Bitcoin for a total of €10,000. A week later you exchange 10 of Bitcoin for 20 of Ethereum.
- At the time of the exchange, 20 of Ethereum is worth €2,000.
- The capital gain in this transaction can be calculated with the cost base as €1,000 (Purchase price of 10 units of Bitcoin) and the capital proceeds as €2,000 (Market value of Ethereum at the time of exchange).
- Capital Gain = €2,000 - €1,000 = €1,000
The same would be true when calculating a capital loss as well, the individual crypto to crypto trades can be claimed as a capital loss if the value changes adversely in Euro terms.
When calculating capital gains it is key to calculate the gain/ loss for each trade and then aggregate the gains over the year, fiat to crypto trades are also part of this process.
Transferring crypto between wallets you own is not counted as a taxable event by CTC because you are not selling or transacting between coins there shouldn’t be a capital gains tax event registered.
Wrapping crypto is a misunderstood event from a tax perspective around the world because so few governments have made any comments on the situation at all. Technically, transferring BTC to WBTC or ETH to WETH is moving between coins so CTC classifies these transactions as capital a capital gains event.
Income Tax
There is little guidance on how Revenue handles income tax what they do offer is “The profits and losses of a non-incorporated business on cryptocurrency transactions must be reflected in their accounts and will be taxable on normal IT rules.” what this likely means is that income from crypto activities that are not trades are subject to income tax when you are an individual rather than a company.
At Crypto Tax Calculator we classify airdrop and staking gains as income, not capital gains. When you classify your transactions you can choose between various options such as buy, transfer, airdrop, and staking. Incoming transactions as airdrops or staking will not factor into capital gains calculations on the app.
The logic behind this is that these transactions are similar to earning interest as you would from a bank account. As the DeFi space evolves there are countless options for earning interest on your crypto Compound, Aave, Yearn.
CTC calculates the income earned from these tokens based on when they are airdropped/ given to you. However, if you hold these coins rather than sell them immediately you will also be subject to capital gains/ loss based on the price you sell at and the price at which they are given to you.
Corporation Tax
Again there is a little guidance from the government in this area “The profits and losses of a company entering into transactions involving cryptocurrency would be reflected in accounts and taxable under normal CT rules.” in other words you will be subject to these taxation principles based on common Irish tax law if you are transacting in cryptocurrency as a business entity rather than an individual.
How Crypto Tax Calculator Can Help
As you can see there are many different transaction types and taxes that might be applicable, doing this by hand can take days or weeks if you have multiple accounts and trade a variety of cryptocurrencies. CTC not only automates the record keeping process but also calculating the gains or losses/ income for the period.
Conclusion
Unfortunately, there is little guidance from the Irish government or the Revenue office as to how to handle specific cryptocurrency transactions. Based on the guidelines provided and common tax laws the above rules demonstrate the unique transactions that can arise and how CTC chooses to handle them.
This should provide enough detail for crypto beginners to advance traders as to how to prepare their tax documents but there are countless new opportunities and trades to take advantage of everyday. Feel free to reach out with any specific question you may have.
Tim Brunette is the CTO of CTC, where he leads technical operations and applies his expertise in cryptography, and machine learning to solve challenging problems in the cryptocurrency ecosystem. He previously worked at Accenture, holds a Bachelor in Space Engineering and a Masters in AI.
