Christmas is coming and from the recent emails we’ve been receiving it sounds like Santa may be delivering cryptocurrency this year.
This article will explore the tax implications on gifting and receiving cryptocurrency.
A gift of property is considered a disposal, at market value, for tax purposes. The person making the gift will need to record the exit of the cryptocurrency at market value on the date it was gifted.
If the market value at the time of the gift (disposal) is higher than the original purchase price, this will result in a profit on the disposal. If the market value at the time of the gift (disposal) is lower than the original purchase price, this will result in a tax-deductible loss on disposal.
John buys 1 ABC token for $1,000 on 1 November 2019. He gifts 1 ABC token to his brother Sam for Christmas, 25 December 2019. The value on Christmas day is now $1,500 per ABC token. John records the disposal of his 1 ABC token at market value on the date of the gift which triggers a $500 taxable profit being the difference between his original cost of $1,000 and market value on disposal of $1,500.
Sam, records the original acquisition value at the market value on the date received ($1,500).
The act of receiving cryptocurrency, is not a taxable event by itself. However, a future disposal will likely be a taxable event.
As outlined in the example above, Sam records the original acquisition value at the market value on the date received. A future disposal would likely result in a gain/loss between the original acquisition cost and subsequent future sale price.
IRD have outlined in their questions and answers section, and we have published previously, that…
“Where you acquire cryptocurrency for the purpose of disposal (selling or exchanging it) the proceeds you make from selling it are taxable.
Bitcoin and similar cryptocurrencies generally don’t produce an income stream or provide any benefits, except when they’re sold or exchanged. This strongly suggests that cryptocurrencies are generally acquired with the purpose to sell or exchange them.”IRD – Questions & answers: Cryptocurrency and Tax
When a gift is received, it is likely the individual receiving the gift has no clear intention. Further information and specific facts would be needed to determine if a subsequent disposal would trigger a taxable event (such as: the amount of crypto received, the duration it was held before disposal, other cryptocurrency activity etc).
We are Chartered Accountants who prepare financial statements and income tax returns that involve cryptocurrency. We also provide personalised tax advice to your individual circumstances.
This is only our interpretation and has been prepared for informational purposes only and is not intended to provide, and should not be relied on for tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.