Last year was the year when Bitcoin truly became mainstream, as the rapidly rising value of the cryptocurrency resulted in thousands of new users worldwide. It’s quite likely, though, that many of these did not consider the tax implications of using Bitcoin upon investing in it, just the same as longer-term users. The allure of Bitcoin and its enormous value made it very tempting to take the plunge without once giving thought to its taxation requirements.
Here’s a basic ground rule that’s worth remembering: if you profit from Bitcoin investments, you are obliged to pay tax on it the very same as with traditional currencies. Even if you don’t plan on retaining profits from Bitcoin investments – let’s say you intend gifting it to a family member, for example – you’ll still owe tax on it and you should declare the market value of the asset at the time of gifting.
The good news is that you are entitled to make certain deductions from your Bitcoin tax bill. The cost of purchasing assets, costs paid in the acquisition or disposal of assets, and any mining expenses on Bitcoins earned from verifying transactions can all be claimed back. Plus, you are permitted to account for inflation in declaring purchase price and enhancement expenditure.
If you have been using Bitcoin for some time and you were unaware of your tax obligations on same, you can make an unprompted qualifying disclosure which will remove any risk of being subjected to an audit further down the line. Make sure to include as many relevant details as possible when submitting this disclosure, along with at least some of the payments for the sum that’s due (you can pay this in installments if you prefer).
Learn more about the taxation requirements surrounding Bitcoin in this infographic courtesy of All Finance Tax.