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If you acquire cryptoassets for the purpose of disposing of them you need to pay income tax on any profit you make. For example, if you buy or mine cryptoassets to sell or exchange them. If you make a loss when you sell your cryptoassets you may be able to claim this loss.

Why your purpose matters

If your purpose for getting cryptoassets is to sell or exchange them, you’ll need to pay income tax when you do.

You may have more than one purpose for your cryptoassets at the time you acquire them. It is your main purpose that matters.

We look at your purpose at the time you acquire (for example, buy or mine) your cryptoassets. If that purpose changes later on, it does not matter.

If you plan on selling or exchanging your cryptoassets at some point in the future, then you have a purpose of disposal. It does not matter how long you plan to hold onto your cryptoassets for before selling or exchanging them. Your main purpose can still be to sell or exchange them, even if it takes a few years.

What you say your purpose is

What you say your purpose for getting cryptoassets is must be supported by what you actually do and the surrounding circumstances, including the:

  • nature of the asset (for example, does it provide an income stream or any other benefits while being held)
  • circumstances of the purchase
  • number of similar transactions
  • length of time you hold the asset
  • circumstances of the use and disposal of the asset.

Just saying why you got your cryptoassets is not enough. For example, you might say you got your cryptoassets as:

  • a long-term investment
  • a hedge against inflation
  • portfolio diversification
  • a store of value outside the monetary system.

These types of reasons usually still involve a purpose of eventually selling or exchanging your cryptoassets. There will be a purpose of disposal if sale or exchange is the way to achieve your goals.

Income streams from your cryptoassets

Sometimes you might earn an income from holding cryptoassets. For example, you might stake your cryptoassets or lend them to a staking-as-a-service provider to earn more cryptoassets. Having an income stream is a factor to consider when thinking about your purpose.

When you do not have an income stream

You may have cryptoassets that do not provide an income stream or any other benefits while you hold them.

This strongly suggests you acquired them for the purpose of selling or exchanging them. This is because the only benefit you get is when you sell or exchange those cryptoassets.

This is similar to our position on gold bullion.

QB 17/08: Are proceeds from the sale of gold bullion income?

When you have an income stream

You may have cryptoassets that provide an income stream or other benefits while you hold them (for example, from staking).

Just because there is an income stream does not mean that you did not acquire them for the main purpose of selling or exchanging them.

If you sell or exchange your cryptoassets for a profit and claim that you did not acquire them for the purpose of selling or exchanging them, you will need clear and compelling evidence to support your claim.

What to do next

If you acquired your cryptoassets for the purpose of disposal you need to work out your tax to pay or loss to claim. To claim a loss, you need to show that if you'd made a profit it would have been taxable.

You may still need to pay income tax even if you did not acquire your cryptoassets for the main purpose of disposing of them, such as if you’re carrying on a profit-making scheme.

Taxing cryptoasset income

Sione speculates on the price of crypto

Sione heard about crypto B in late 2016 and decided to invest $2,000. Shortly afterwards as he saw the price going up, he invested an additional $3,000.

In late 2017 Sione sold his crypto B when he judged that the market had reached its peak.

Sione acquired crypto B for the purpose of disposal. His actions show he bought it to make a gain on sale. Crypto B did not provide Sione with an income stream or any other benefits. Sione will need to pay tax on his profits.

In June 2018 Sione decided to buy more crypto B. In December 2018, after a steep drop in the price, Sione decided to sell crypto B to minimise his losses.

Sione’s history of buying and selling crypto B, and the nature of crypto B, support the fact that Sione held crypto B for the purpose of disposal. In the same way Sione had to pay tax on his profits, Sione can claim a loss made on the sale of crypto B.

Leena buys crypto as a long-term investment

Leena decided to invest $5,000 in crypto E as a long-term investment. She held it for 3 years during which time the market for crypto E went up and down. After 3 years when Leena judged that crypto E had realised its full potential, she sold it for a profit.

Crypto E did not provide an income stream or any other benefit to Leena. She simply held it with a purpose of one day making a gain on the sale. Calling it a long-term investment does not mean that Leena did not acquire crypto E for the purpose of disposal.

On the facts provided Leena acquired crypto E for the purpose of disposal and needs to pay tax on the profit she made from selling it.

Chen changes his purpose for buying crypto

Chen bought crypto B as a speculative investment intending to sell it for a profit when the price went up.

Six months later an exchange he used offered users an opportunity to lend crypto B to the exchange and earn interest. Chen did this and received a small amount of interest paid in crypto B. Two months later he sold all his crypto B for a profit.

It is Chen’s purpose at the time he acquired crypto B that matters. The fact that he decided to use his cryptoasset for lending does not change the fact that his purpose when he bought crypto B was to sell it.

Chen needs to pay tax on the interest he received as well as on the profit he made from selling his crypto B.