Do you have to declare bitcoin gains if you acquired the bitcoin for your own personal use? Is it taxed? And at what rate?
Cryptocurrency, like Bitcoin, is an asset for tax purposes, and there may be tax consequences if you sell it or use it to buy other goods or services. This means that, most of the time, when you dispose of cryptocurrency (by trading, selling or gifting) you’ll need to work out if you have made a capital gain or loss.
However, you may be able to ignore cryptocurrency transactions that are done for your personal use.
If you buy and use cryptocurrency solely to purchase goods or services like clothing or music, the cryptocurrency is usually considered to be a personal use asset, and there are no tax consequences.
Example : Personal use
Michael wants to attend a concert. The concert provider offers discounted ticket prices for payments made in cryptocurrency. Michael pays $270 to acquire cryptocurrency and uses the cryptocurrency to pay for the tickets on the same day. The cryptocurrency in these circumstances is a personal use asset, and there are no tax consequences for Michael.
Example : Investment
Peter has been regularly acquiring cryptocurrency for over six months with the intention of selling at a favourable exchange rate. He has decided to buy some goods directly with some of his cryptocurrency. Because Peter was holding the cryptocurrency as an investment, the cryptocurrency is not a personal use asset. This means that Peter will need to consider the tax issues connected with trading his cryptocurrency, and return any gains or profits in his income for the year.
Cryptocurrency is not a personal use asset if it is acquired, kept or used as an investment, in a profit-making scheme, or in the course of carrying on a business. It’s also worth keeping in mind that the longer you hold your cryptocurrency, the less likely it is that it will be a personal use asset.
If you do make a capital gain, you'll add that capital gain to your assessable income for the year and this may increase the amount of tax you need to pay. Because tax isn't withheld from your salary and wages to cover capital gains, you may want to work out how much tax you'll owe and set aside sufficient funds to cover the amount.
Special rules apply in calculating capital gains, and you'll need to ensure you keep accurate records to help you complete your tax return. You can’t make capital losses on personal use assets.