TPA tax expert Christian Oberkleiner has compiled the 7 key questions and answers for crypto investors.
1. Do private cryptocurrencies have to be taxed?
Any profit from the sale of cryptocurrencies held as tax-relevant private assets is taxable if the purchase and sale occur within the one-year speculation period.
The following, in particular, are regarded as cryptocurrency sales:
- Exchange for a legal currency (EUR, USD, etc.),
- Purchase of a product or service using the cryptocurrency and
- Exchange of one cryptocurrency for another or for another crypto-asset.
In addition to the acquisition costs, the disposal costs for the respective transaction (expenses) can be deducted from the sale proceeds. The resulting speculative profit is subject to progressive income tax of up to 55%. (Only changes in value realised in the exceptional case of interest-bearing investments (lending of cryptocurrencies to other market participants) are subject to the special tax rate of 27.5%; however, pro-rata “interest income” is subject to the income tax tariff in principle.)
2. Do purchases and sales of cryptocurrencies have to be documented?
Every taxpayer has a responsibility to document all transactions fully. This also applies to transactions between personal cryptocurrency wallets. With many crypto exchanges, the entire transaction history can be exported in electronic form, including the respective conversion into euros, if applicable. In addition, it is also recommended that screenshots are taken of the transactions and kept with the records.
Note: If there is no documentation of the transactions carried out, or if such documentation is inadequate, the tax authority can estimate the income.
3. How are the different types of mining taxed?
Through the validation of transactions between other network subscribers, new units of cryptocurrencies are credited to a “miner” (this is known as “mining”). A miner can work with his/her own hardware (“solo mining”), with shared hardware (“pool mining”) or with a remote data centre instead of his/her own hardware (“cloud mining”).
The Austrian Ministry of Finance (Bundesministerium für Finanzen, BMF) holds the view that mining is essentially an “operating activity”. All costs incurred due to mining (operating expenses, such as hardware and electricity costs, etc.) can generally be deducted from the sale proceeds. Any losses may be offset against other income and/or carried forward to the next year. The income earned is subject to the standard tariff of up to 55% income tax (no speculation period).
4. How should a purchase involving cryptocurrency be treated from a tax perspective?
If, for example, bitcoins are used as a means of payment, this transaction is regarded as a barter deal from an income tax perspective, where the fair market value of the economic asset provided is deemed to be the purchase price.
Example: Entrepreneur A purchases a machine from Entrepreneur B (valued at EUR 21,000 gross) in July 2018. The machine costs 3 bitcoin units, which A bought in April 2018 for EUR 5,500 per BTC. The exchange rate when the machine is purchased is EUR 7,000.
The cost to A of acquiring the machine is the gross value of the BTC upon (deemed) disposal (EUR 21,000). In addition, the profit from the disposal of the BTC, in the amount of EUR 4,500 (EUR 21,000 minus EUR 16,500 in acquisition costs), is taxable at the applicable tariff. The cost to B of acquiring the 3 BTC is EUR 21,000. The proceeds generated by B from the disposal of the machine amount to EUR 21,000 gross.
5. How are the young coins in the case of a hard fork taxable?
The BMF holds the view that, for income tax purposes, the previous date of acquisition of the original cryptocurrency balance (old coins) is also relevant for the newly received cryptocurrency balance (young coins). The cost of acquiring the young coins is recognised at zero; the cost of acquiring the old coins remains unchanged. Therefore, within private assets, the full proceeds from any disposal of the young coins are taxable only within the continuing one-year speculation period.
6. How are transactions in cryptocurrencies treated in terms of VAT?
The exchange of conventional currency (e.g. euros) for units of virtual currency, and vice versa, constitutes a VAT-exempt process, according to the case-law of the European Court of Justice (ECJ). There is therefore no VAT to pay on purchases and sales of cryptocurrencies. Accordingly, there is also no right to deduct input tax in connection with this activity.
7. Is mining subject to VAT?
The prevailing view is that, in principle, mining is either not taxable due to the absence of an identifiable service recipient (in the case of block rewards) or is taxable, but tax-exempt, in the case of the verification of a specific transaction involving transaction fees. As a result, the miner does not have to pay VAT, but he/she is also not entitled to deduct any input tax for the VAT he/she has paid for input services.
Do you have any questions that have not been answered in the FAQs on cryptocurrencies? Contact our tax experts!