Buying & Selling
The most obvious activity which is subject to Capital Gains is buying then selling cryptocurrency – buying in itself isn’t a taxable event.
If you made a single purchase of a cryptocurrency funded with fiat (e.g Euros) and then sold the entire amount for Euros in a single trade, you can simply subtract the price you paid from the price you bought.
Any resulting profit should form part of your tax submission for Capital Gains.
E.g You buy BTC in August 2020 for €10,000; You sell it November 2020 for €20,000
€20,000 – €10,000 = €10,000 liable for Capital Gains tax.
Many people wrongly assume that Capital Gains simply applies to the Fiat > Crypto example above. It will vary by country, but Capital Gains will generally relate to any disposal. How disposal is defined by your tax authority will be the crucial differentiating factor, but it may well cover:
- selling crypto for fiat money
- exchanging crypto for a different type of crypto
- using crypto to pay for goods or services (if you have a crypto debit card)
- giving away crypto to another person
- buying/selling an NFT with crypto
Capital Gains doesn’t relate to simply transferring cryptocurrency between addresses you control or buying it in the first place.
If your crypto activity is more complicated then our very simplistic example – which is most people – then looking at that list of taxable events and thinking about the complexity of the required calculation, may bring you out in a cold sweat.
Before hitting the panic button, there will be rules that should help you unpick a complicated trade history, often called ‘share matching’ or ‘share pool accounting’
Share pool accounting provides a basis for the order of disposal of a complex history of trades. It might include:
- Same day matching – Matching trades that happen within the same 24hr period
- 30 day matching – As above but using a 30 day period
- Pooling – Price averaging all trades not covered in 1 and 2
In some cases your tax authority may leave it up to you to figure out a way to work out the cost basis for tricky areas like Defi. In this situation use what you think is the most sensible approach, keep a record of your calculations/logic and be consistent in its application. What is in your favour here is that the tax authority is essentially saying ‘we don’t know, make a sensible suggestion.’
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