Austria: Deadline April 30th, the date for filing the tax return for the fiscal year 2018. By using electronic transmission via “Finanzonline” this date extends until June 30th and if done through a tax accountant, even a bit longer. In Germany, the deadlines are different. Here, the taxpayer has time until July 31st, with plausible reason until September 30th.
First of all, before the informative part of the article begins: Paying no taxes and giving little or no relevance to this topic poses a very high risk in the long term. Past successful legal proceedings for the transfer of user data of known crypto exchanges such as 13,000 Coinbase Accounts to the Internal Revenue Service (IRS) have shown that governmental institutions definitely want to get their piece of the cake. Thus, the Federal Ministry of Finance (Bundesministerium für Finanzen [BMF]) will put a lot on preventing tax evasion and money laundering with cryptocurrencies.
What is the current situation in Austria?
"Cryptocurrencies like bitcoins are currently not recognized as official currency. They also do not constitute financial instruments. They are other (intangible) assets. These intangible assets are considered as non-disposable. "– BMF, Austria
What does that mean exactly? Or more importantly, how does the tax treatment of cryptocurrencies look like? Bitcoin and other cryptocurrencies are subject to income tax under current Austrian law. In other words profits or losses from trading in cryptocurrencies directly or indirectly influence the income tax rate. In the case of no interest-bearing investment, cryptocurrencies are to be regarded as speculative transactions, provided that the period between acquisition and disposal does not exceed one year.
Attention: Not only the transfer from crypto to FIAT (€,$,..), but also the transfer within two cryptocurrencies (e.g. Bitcoin to IOTA) is a taxable exchange. From a tax point of view, there is an acquisition and realization for every exchange of assets. This significantly complicates the correct calculation of the tax debt.
What is the current situation in Germany?
The German Federal Ministry of Finance agrees that cryptocurrencies have the character of payment, but are not a “real” currency and thus no VAT is incurred in the exchange between Bitcoin/Altcoins to FIAT. However, it is important to note that selling your coins/tokens falls under income tax, which, as in Austria, comes with a holding period of less than one year. A tax exemption limit is up to a maximum of € 600 a year (in Austria € 440). Special in Germany: losses from trading in cryptocurrencies can be carried over to the next year and offset against possible profits.
Attention: This exemption limit applies to all private sales transactions together and exceeding leads to the tax liability of the entire amount – not just that which exceeds the exemption limit.
What information is important for the tax declaration?
- Date and time of acquisition of the coin/token
- Acquisition price at the time of purchase (average market value – e.g. Coinmarketcap – or exact market price of the respective exchange)
- Exact amount
- Exchange or platform via which the coin/token was acquired
- Sale date and time
- Sale price at the time of sale (average market value – e.g. Coinmarketcap – or exact market value of the respective exchange)
- Calculation method (In Austria is FIFO standard and compulsory, as long as acquisition time and costs are not completely documented – otherwise also LIFO or HIFO (optimized) is allowed. In Germany, FIFO is obligatory under section 23 (1) no. 2 sentence 3 dEStG.)
What’s the best way to go?
- The first thing is to get an overview (On which exchanges was traded? When did deposits and withdrawals take place? Which calculation method is used?)
- Then there are two options: First, you can manually download all the transaction histories from each exchange and hand them to your tax accountant, who will most likely bill a fair amount of hours to calculate everything correctly. Secondly, there are tools such as Blockpit, which make it possible to import the transactions of major exchanges via API interface to get a report with automated tax calculation. This does not just save time, but due to the optimized preparation in the form of a PDF also reduces costs substantially, in case you take additional tax law support.
- Select calculation method (once you have selected a calculation method [FIFO, LIFO, …], then you must keep it, also in the following years). In the first-in-first-out method, the coin of a respective virtual currency that was first bought is also sold first again. With the last-in-first-out method, the last coin purchased is the first to be sold again.
- You can offset losses from divestments by cryptocurrencies directly with your profits. Attention: Only with profits from cryptocurrencies! Not with stock profits etc.
- In the case of using Blockpit, point 3 and 4 will become obsolete as these steps are handled by the tool.
- Whatever variant you decide on, the final step is to file your tax return either in paper form, online or with a tax consultant.
Why is documenting transactions so important?
First, of course, due to the tax calculation. Because the limitation period is 5 years. In suspected cases of tax evasion, even 10 years can be determined retroactively. So if you can not show a complete transaction history, you will also have problems using them for a plausible tax calculation. A second but equally important point in the future is that, virtual currencies will be subject to the Anti-Money-Laundering (AML) Directive. Accordingly, one has, for example, as a financial institution, the duty of care that corresponding incoming payments over € 10,000 are verified in terms of origin and taxation. As a user of virtual currencies, I am again obliged to provide the corresponding documentation and proof of origin. If I am unable to do so as a bank customer, the payment must be rejected by the financial institution and the notice will be passed on to tax authorities. A "cash out" of crypto currency earnings from a certain amount will therefore be possible only with appropriate documentation.
A detailed version on the subject of cryptocurrencies and taxes can be found in the current issue of the cryptotaxguide 2019 (only available in german).
Information on special tax cases such as mining/forks and the sources used can be found below (in German):
BMF Austria – Income tax return
BMF Austria – Taxation of cryptocurrencies
Haufe.de – Taxation of cryptocurrencies
BMF Germany – Taxation of cryptocurrencies
Finanzgefluester.de – Forks and the taxation