As Cryptocurrencies Continue To Be Legitimized How Open And Available To Taxation Are They?
(Source: forbes.com)

clicks | 2 months ago | Google AI sentiment -0.30 | comments: discuss | tags: bitcoin cryptocurrency


Article preview (bot search)

(Original link: forbes.com)

The famous quote, usually attributed to Benjamin Franklin, about tax states: “In this world nothing can be said to be certain, except death and taxes.” Most people know the importance and requirements of taxes within society, having been well established for the ongoing economic climate for centuries. But then came cryptocurrencies. Suddenly a digital form of value that was anonymous and global, as well as prone to massive gains and losses, entered the economic climate. Many saw cryptocurrencies as an outlier in terms of the taxation bubble, seemingly immune to the reaches of the tax man.
In April 2018, as the tax deadline approached in the US, it was reported that of the most recent 250,000 filers on the Credit Karma Tax platform, fewer than 100 people reported capital gains on their cryptocurrency investments.
Capital gains are one of the major types of taxation that cryptocurrency is subject to - and that is in America. In Canada, for instance, it is slightly different as cryptocurrency is subject to the Income Tax Act, and treated as commodities.
Some countries do not even have a tax requirement for these digital assets, but things are starting to change. While cryptocurrencies have become more adopted and normalised in the past few years, the regulators have also caught up - and within that classification, tax authorities have also looked to catch up.
So, not only was it easy to keep cryptocurrency gains and acquisitions out of the tax man’s reach a few years ago, in some cases, it was too difficult to include them in filings as the tax authorities were yet to catch up with the assets and allow for people to follow along.
However, cryptocurrencies today are far more normalised and legitimized, and most tax authorities have caught up. In fact, there are even businesses that are forming to aid in filing cryptocurrency taxes to push the legitimization and regulation.
A case of capital gains
When cryptocurrencies first came to light in the mainstream, and the regulators realised that they should be subject to taxes, it was capital gains that were initially applied on them - this was also at the time when Bitcoin was skyrocketing in value.
Kevin Hobbs , CEO of Vanbex Group , explains the situation in Canada where capital gains tax is part of the cryptocurrency tax environment.
“In Canada, cryptocurrency is subject to the Income Tax Act, and treated as commodities that you would need to record gains or losses on,” said Hobbs. “As a result, when one cashes out cryptocurrency profits into fiat, it is taxed exactly as capital gains. You have to declare capital gains when you sell property or investments for more than you paid.
“For example, if you bought shares for $10,000 and sold them for $15,000, you have to declare a $5,000 capital gain in the year you sold the shares. As of 2018, the capital gains inclusion rate is 50 percent, you would include $2,500 in your total taxable income. In short, this is more of an integration than evolution. What we’re seeing is countries like Canada working to define this new type of asset to fit into existing frameworks.”
As Hobbs makes mention, regulators have predominantly tried to shoehorn cryptocurrencies into existing frameworks, especially in regards to tax. There is an understanding that these assets need to be regulated, but to create an entirely new set of rules would take too long and lead to the regulators lagging behind even further.
“Although Bitcoin has been around for over 10 years, the understanding and need for crypto tax has only surfaced in recent years because of two factors-regulators, and the public, strengthening their understanding of the technology to define it; and more importantly the increasing scale of adoption. These driving forces have legitimized cryptocurrency enough that laws like tax regulation warrants introduction into the space to foster long-term, sustainable growth,” adds Hobbs.
The need for clarity
Even though the regulators and tax authorities are trying to define cryptocurrency gains and their tax requirements as the same as other assets in order to bring them in line with existing legislation, there is still often cases of misinformation and lack of clarity.
With both the asset being new, and the regulation which is meant to be governing it too, there are teething pains both ways; regulators struggle to enforce their rules and customers struggle to understand the requirements because of lack of clarity.
Hobbs explains just why it is so difficult to file cryptocurrency tax as the current situation stands:
“First, unlike data required to process your income, purchase, or any other taxes, the information needed to file your crypto taxes are scattered among a plethora of exchanges and platforms. The piping that facilitates the flow of data is disconnected, making it extremely hard right now to pull accurate transaction histories and pricing data,” says Hobbs.
“Second, the cryptocurrency market is indeed highly volatile, making it hard t...