The tax treatment of cryptocurrency, crypto-assets, and NFTs is coming under increasing scrutiny from both Revenue and asset holders.
Income vs corporation tax
The most asked question about transactions involving crypto-assets is whether the transaction should be subject to income/corporation tax or capital gains tax (CGT).
CGT should apply to transactions involving crypto-assets where the asset has been held for investment purposes.
The “Badges of Trade”, the well-established set of guidelines laid down by the courts in various cases decided over the years, should be consulted when determining if the income should be treated as a trading transaction.
Case law on the sale of traditional shares provides that, even if shares are traded regularly and in an organised fashion, the transaction may still be considered an “investment” instead of a “trade.”
The position will depend on the exact fact pattern of the disponer.
Where a company is deemed to be a trading entity and carrying on a trade of investing in crypto-assets, the profits from the sale should be subject to corporation tax at the standard rate of 12.5 percent.
If the trade is carried on in a personal capacity, the individual may be taxable at their marginal rate of up to 55 percent.
Should a transaction be subject to capital gains tax, the chargeable gain should be taxable at the standard rate of 33 percent.
The gain may be mitigated by any other capital losses the disponer may have carried forward or realised in the tax period. A return should be filed with Revenue noting the value of all crypto-assets on acquisition and disposal.
As these assets may be viewed as investments, the inheritance or gift of crypto-assets should be subject to capital acquisition tax (CAT), which is charged at the rate of 33 percent.
The reliefs that apply to acquiring any inheritance or gift should also apply in this instance. Importantly, individuals must remember to include crypto-assets as part of their estate and not merely consider “traditional” assets.
As the currency exchanges most used are not based in Ireland, such transactions should be outside the scope of Irish Stamp Duty. It is recommended that this be reviewed on a case-by-case basis, however.