It is quite funny to see governments changing stance on cryptocurrencies. I remember most refusing to even accept there is a technological revolution taking place making firm statements that cryptocurrencies are nothing more than 'play-money.'
Now they are adding up the gains and licking their chops while they devise ways to maximize the capital gains taxes they are able to extract from this new form of wealth creation.
It is that time of year many a self-employed person dreads, the deadline to submit your tax return and pay anything you owe. But this year there is a question a select few should be asking themselves - have I profited from my investment in crypto-currencies? If you have, you could be liable for tax.
This may be true but as formal legislation is quite undeveloped when it comes to taxing gains in this new industry. Many have tax shelters or businesses they'll be able to put their gains through, some avoiding taxes completely while others find ways to pay a more favorable tax rate or possibly use deductions to eliminate their taxes altogether.
In 2014 Revenue & Customs published guidelines making clear the different taxes that apply to any earnings from crypto-currencies. For most people who have bought a few bitcoins some years ago, it is Capital Gains Tax that will be relevant.
Capital gains tax is quite a heafty one with many countries looking for 15% or more. Avoiding them may be tricky but certainly in the realm of possibility. Many will simple not take their gains out and find new ways to spend cryptocurrencies without actually changing their gains into fiat.
This will apply to any profits, once you hit the £11,300 CGT threshold, not just if they are converted into a standard currency but if they are used to buy other crypto-currencies such as Ethereum or to invest in initial coin offerings (ICOs).
But in recent weeks there is some evidence that a few people are making trading in crypto-currencies a full-time job, in which case they are likely to be liable for income tax on their earnings.
This represents scare tactics at the current stage to limit growth of cryptocurrencies markets in my opinion. Being scared of tax shouldn't be enough to persuade people to leave profitable investments alone altogether. Governments need to find a source of income to pay for massive social service bills and line their pockets but I think that they'll have trouble monitoring cryptocurrency gains and maximizing potential taxes they lay claim to.
Now, the acceleration in the value of Bitcoin and other crypto-currencies happened over the course of 2017 so it is unlikely many people will have incurred tax liabilities in 2016-17, the year HMRC is currently examining. But over recent months there has been a flood of Bitcoin money heading into everything from ICOs to property - so next year there should in theory be a big boost for the government's Capital Gains Tax receipts. One accountant told me plenty of his clients had piled into Bitcoin but seemed unaware of the tax implications.
Well I'd say that governments are going to be severely disappointed about the potential taxes they are already assuming they will collect. Just a gut feeling on that anyways...
What is clear is the whole crypto-currency industry is now under the spotlight of regulators around the world. They are concerned not just about tax evasion but money laundering and major fraud. In the United States this week the Securities and Exchange Commission got a court order to halt an ICO attempting to raise $1bn (£0.7bn) to fund what was claimed to be the world's first "decentralised" bank.
This is clearly a point where we will see more government intervention in the entire industry. If its big business it will motivate them to intervene and take their cut. Claims of being concerned about tax evasion and money laundering are valid as there will certainly be a lot of that going on in any unregulated industry with as much growth as the cryptospace has seen.
The regulator alleges this was a scam that had already used what it described as fraudulent tactics to raise as much as $600m, including failing to disclose the criminal background of key executives. AriseBank has blamed the dispute on "confusion" over its activities and crypto-currencies. Accountants have a warning for those who invest their crypto-currency gains in schemes that turn out to be fraudulent - if you lose your money, you won't even be able to write it off against tax.
This is severely disappointing in my opinion as I've seen no other information pointing to the fact that AriseBank may be a potential scam. Clearly they've entered a bit of a mess with regulators but their is no doubt in my mind that they will be able to sort it out. It seems politics is simply a matter of knowing the right people and figuring out what they want.
What do you guys think about regulations in the cryptospace? Will these tax collectors be able to effectively regulate the space and meet their collection goals based on their capital gains income expectations?
Please leave your thoughts and opinions below.
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Source:
Bitcoin - the Revenue comes calling - BBC
Image Source:
BBC