How Governments Tax Bitcoin
Are you wondering whether governments tax Bitcoin? If so, here’s how different governments around the world tax Bitcoin.
Anyone planning to invest in Bitcoin should know about its taxation to avoid issues with the taxman. Bitcoin is among the many forms of decentralized digital money today. Also called cryptocurrencies, these digital monies run on blockchain technology that creates a network of connected nodes or computers.
But Bitcoin is more than money, and it’s a digital asset that people trade for profits. Others use it as an investment. Today, many people hold Bitcoins worth thousands or millions of dollars in their crypto wallets. The idea is to keep their digital coins, waiting for their value to increase and sell them for profits.
However, different countries and governments have varying perceptions of Bitcoin. For instance, a country like China has outlawed Bitcoin mining. Instead of embracing this digital currency, China has developed a digital Yuan. The Chinese citizens can trade this virtual currency via the Bitcoin motion website.
Nevertheless, El Salvador has embraced Bitcoin and made it a legal tender. Bitcoin is a property in some countries, meaning people and businesses pay taxes when selling Bitcoin.
Globally, authorities have different rules governing Bitcoin taxation. Here are ways governments around the world tax Bitcoin.
USA
According to the IRS, Bitcoin is a capital asset. That means individuals and businesses pay taxes on their gains from selling Bitcoin. For instance, the taxman expects you to pay a short-term capital gain tax after holding Bitcoin for a year or less. If you keep your position longer than this, the taxman expects you to pay a long-term capital gain tax.
However, you don’t pay any tax when purchasing Bitcoin. Theoretically, you won’t owe anything to the taxman if you hold Bitcoin. The only time you pay a tax is when selling or exchanging Bitcoin.
Bitcoin’s capital gains tax rate varies from 0% to 37% when selling within a year. However, the tax rate is much lower if you hold the cryptocurrency longer than a year, ranging between 0% and 15%. But it can go up to 20%, depending on a person or combined with marital income. Bitcoin holders can use any losses to offset their income tax for a total of up to $3,000.
United Kingdom
The UK doesn’t have specific rules on Bitcoin or cryptocurrency taxation. Instead, Bitcoin is subject to income tax or capital gains tax. The tax that a Bitcoin holder pays depends on the transactions they make. If the authorities notice that you made an income, they expect you to pay an income tax. And if you make a capital gain, the authorities expect you to pay a capital gains tax.
Canada
In Canada, the taxman doesn’t view Bitcoin as a currency. Instead, they consider it a commodity or a capital asset like a rental property or a stock. When taxing Bitcoin as income, the taxman expects the holder to pay income tax on the proceeds accrued from the crypto transaction. If the taxman taxes Bitcoin as a capital gain, the holder pays a capital gains tax on half of the profits accrued from the crypto transaction.
Bitcoin holders pay between 15% and 33% for the income tax, depending on their taxable income. Worth noting is that the Canada Revenue agency tracks crypto investments by working with different crypto exchanges. Thus, CRA can acquire Bitcoin users’ information from crypto exchanges and track down crypto investors. Perhaps, this should prompt Canadian Bitcoin investors to report their crypto investments and pay relevant taxes.
Other Countries
In countries like Australia, Bitcoin is an asset that attracts income tax and capital gains tax. In Germany, Bitcoin is a private asset rather than a property, meaning it attracts individual tax income tax and no capital gains tax. Other countries with rules governing Bitcoin taxation include Switzerland and the Netherlands. Some countries have a soft or lax stance on crypto. Therefore, anyone interested in trading or investing in Bitcoin should understand their country’s tax rules to avoid trouble with the taxman.
