The way cryptocurrency is taxed depends greatly on the digital currency’s legal definition in a particular country and the tax system used in that nation.
For instance, in the U.S., the Internal Revenue Service (IRS) has declared that taxation in cryptocurrency occurs in the same way as any other kind of property. Individuals who do not report their trades, either intentionally or because they did not keep proper records, are at risk of penalties and interest. In extreme scenarios, they can also face criminal charges.
If you are into crypto investing, you should be aware of taxation in cryptocurrency. This article illustrates cryptocurrency tax rates in different nations and related details.
Read on to know more.
How is cryptocurrency taxed in general?
Cryptocurrency is taxed similar to stocks and other kinds of property. When you earn a gain after disposing of or selling cryptocurrency, you need to pay taxes on the gain amount. The tax rates applicable for cryptocurrency gains are the same as the capital gains taxes levied for stocks.
Examples of taxable and non-taxable cryptocurrency events
Given below are some examples of taxable and non-taxable cryptocurrency events:
| Non-taxable cryptocurrency events | Taxable cryptocurrency events |
| Donation of crypto to a tax-exempt organisation | Trading crypto for another crypto |
| Purchasing crypto with fiat currency | Selling crypto for fiat money (JPY, USD, EUR, etc.) |
| Gifting crypto to someone (if the gift’s cost is not more than $15,000) | Trading, buying or selling an NFT |
| Purchasing a non-fungible token with fiat currency | Using crypto to purchase services or goods |
Cryptocurrency taxation in different countries
Here’s how cryptocurrency is taxed in different nations:
United Kingdom
The capital gains tax rates applicable for selling any cryptos or digital coins in Great Britain are:
- For higher and additional rate taxpayers – 20%
- For basic rate taxpayers – 10%
However, this depends on the size of the gain, your deducted allowances and your overall taxable income because you need to pay 20% on any amount above the basic tax rate.
For capital gains tax, the tax-free allowance is equivalent to $16,610.
United States
Selling and purchasing cryptocurrency in the U.S. is taxable as the IRS considers cryptocurrency as property and not a currency. It levies a tax between 0% and 37%.
Italy
In Italy, only that portion of the gain is owed to the tax authorities, which is realised on the sale of cryptos for more than $58,232 (equal to the old 100 million lire or €51,645).
Australia
In Australia, cryptocurrency kept for over 12 months qualifies for the 50% deduction of capital gains tax (CGT). Capital gains taxation will occur when individuals dispose of their crypto (i.e. sell, gift, trade, exchange, or use to purchase services or goods).
Netherlands
In the Netherlands, the income of individuals is taxed using different methods and at various rates, depending on the income type. This nation has levied a 31% tax on crypto.
Germany
Germany considers cryptos not as a capital asset but as private money. Individuals who hold their cryptocurrency for over one year and later swap it, spend it or sell it need not pay tax.
But holding cryptocurrency for less than a year is subject to taxation unless the profits are lower than €600.
Moreover, individuals who have staked their crypto to earn more income need to pay taxes irrespective of how long they have held it. The staked cryptocurrency will be tax-free at the point of sale only after 10 years of holding the crypto.
There are several other areas where individuals will attract cryptocurrency taxes. This includes transactions like mining crypto, receiving payments in cryptocurrency, selling staked crypto, and staking crypto within 10 years. It also includes swapping, spending and selling crypto held for less than 1 year and whose gain is over €600.
Canada
Canada considers crypto a digital asset whose sale attracts tax, but the holding or purchase does not. Individuals earning capital gain via disposal of crypto need to include the same in the year’s income. However, only 50% of the capital gain faces taxation, not the total gains.
India
As per the Union Budget of 2022 announcement, income from digital assets (including crypto) transfers will be taxed at a 30% rate. Also, TDS at a rate of 1% was proposed for cryptocurrency-related transactions.
How to minimise cryptocurrency taxes?
Following are some ways to minimise crypto taxes:
- One of the most effective ways to save on crypto taxes is to get indirect exposure to cryptocurrency. For instance, multiple platforms allow Indian investors to get exposure to digital currency without holding or buying crypto. This can help crypto investors to reduce tax liability.
- Hold successful cryptocurrency investments for over one year before using or selling them. Tax rates on such long-term gains are lesser than rates on short-term gains.
A part of cryptocurrency investing is recording the losses and gains, reporting them correctly and paying taxes. As a potential crypto investor, you should consider the aforementioned aspects related to cryptocurrency taxation.
Follow the taxation rules for cryptos set by the government and find strategies to reduce your crypto tax liability for higher returns.
