If you’re in the business of trading (or dealing) in cryptoassets you need to pay income tax on your profits.
Working out if you’re in the business of trading in cryptoassets
Trading (or dealing) involves buying and selling cryptoassets to make a profit.
The main way to tell if you’re in the business of trading in cryptoassets is by looking at:
- the frequency of your transactions
- how much time and effort you put into buying, selling or exchanging cryptoassets.
Other things to consider are:
- the reasons for your transactions
- whether your activity is organised and systematic
- how long you hold your cryptoassets
- the amount you invest.
It’s likely that you’re in the business of trading in cryptoassets if you:
- have a high number of transactions
- spend a lot of time and effort managing your cryptoasset portfolio
- work on your cryptoasset portfolio on a fairly continuous basis.
If you are in the business of trading cryptoassets, your cryptoassets are likely to be trading stock.
Trading in cryptoassets if you work full-time
If you have a full-time job and spend some of your spare time buying and selling cryptoassets, you’re probably not a trader unless your activity is highly organised and structured.
Even if you’re not a trader, you’ll still need to pay tax on any gains if you bought your cryptoassets for the purpose of selling or exchanging them.
Cryptoassets that are not part of your trading business
If you’re a trader you might have some cryptoassets that are separate from your trading business.
If you claim that cryptoassets you sold were not part of your trading business, you will need clear and compelling evidence to show that they were not part of your trading business when you both bought and sold them.
If you hold cryptoassets that are not part of your trading business, you will still need to pay tax if you:
- bought those cryptoassets to sell or exchange
- are carrying on a profit-making scheme.
Wiremu is trading in cryptoassets
For 18 months during 2016 to 2017 Wiremu worked part-time as a taxi driver. During this time, he invested $30,000 in the cryptoasset market.
Wiremu spent between 4 and 5 hours most days checking and studying the market. He used several cryptocurrency exchanges and often made multiple transactions each day. He made significant profits from this activity.
Wiremu was in the business of trading in cryptoassets.
He had a high number of transactions on a fairly continuous basis over a reasonable period of time.
The time and effort he put into buying and selling together with his high profits show his trading activity was fairly organised and systematic.
Mizuki is not trading in cryptoassets
Mizuki has a full-time job as a mechanic. She buys $50 worth of Bitcoin every week. She has set up an automatic payment to a cryptocurrency exchange and the exchange deposits the Bitcoin into her wallet every week.
Mizuki keeps a casual eye on the market and sometimes buys a little more Bitcoin or some altcoins. Occasionally she sells some of them.
Mizuki is not in the business of trading in cryptoassets. Although she has a reasonably high number of transactions on a continual basis, the time and effort she puts into buying and selling cryptoassets is not significant, and the amount of money invested is relatively small.
Even though Mizuki is not a trader she’ll still need to pay tax on any gains if she bought her cryptoassets for the purpose of selling or exchanging them.