A hobby is an activity done mainly for pleasure or enjoyment in your spare time.
Even if your mining activity is a hobby you may still need to pay tax when you:
- receive your cryptoassets if they are ordinary income from providing a service
- sell your cryptoassets if you mined them for the purpose of selling them.
Working out if your cryptoasset mining activity is a hobby
Cryptoasset mining is generally an activity aimed at making a profit, not a hobby. If you are mining cryptoassets you will generally either be:
- in business
- carrying on a profit-making scheme.
In very limited circumstances your cryptoasset mining activity may be a hobby. This will depend on the specific facts and circumstances of your situation.
Ethan learns about cryptoasset mining technology
Ethan has a full-time job in IT and is interested in new technologies.
He hears about Bitcoin mining in 2010. He wants to understand how the technology works so he spends some of his spare time learning how to mine on his desktop computer.
Ethan successfully starts mining and receives some Bitcoin late in 2010. After a few days he stops mining. He has done what he set out to do, which was learn how Bitcoin mining works.
In mid-2013 Ethan hears how much Bitcoin is worth and remembers that he mined some back in 2010. He sells all the Bitcoin he mined in 2010 in one transaction.
Ethan only wanted to learn about Bitcoin and its technology. He did not mine to make a profit. His mining activity was one-off, short-lived and not business-like. On these specific facts, Ethan was not in the business of mining cryptoassets and was not carrying out a profit-making scheme.
Because Ethan only mined for a few days to learn about Bitcoin technology, his mining rewards are not ordinary income.
Ethan does not have to pay tax on the Bitcoin he received. He also does not have to pay tax on money he made from the sale of his Bitcoin. This is because he did not mine it for the purpose of selling it.
Ethan cannot claim any expenses relating to his mining activity because his mining income is not taxable.