While many refer to crypto as the “Wild West,” some believe it can only last a little longer.
Thomas Shea, head of crypto taxation at EY Financial Services, told Cointelegraph that taxation for crypto is an evolving area and new regulations could be implemented soon. “There is new legislation that will require reporting of at least some crypto transactions, and when those rules come into effect there will be significant changes,” Shea said.
The EY executive noted that with the growing popularity of crypto, lawmakers are constantly exploring how to generate revenue by taxing and regulating digital assets.
“We are seeing some jurisdictions developing regimes, rates and reporting unique to digital assets. In the United States, we find that digital assets are subject to rules and reporting generally limited to titles (not ownership). »
While they may not like their crypto assets being taxed, understanding the evolution of tax impacts associated with crypto is crucial according to Shea. The tax expert noted that market participants should be aware of “the extent of their transactions that may trigger a taxable event and associated reporting requirements.”
According to Shea, whether one buys or sells crypto influences whether or not it is taxable. Buying crypto with fiat and any unrealized capital gains is not a taxable event. However, the tax official noted that selling crypto is a taxable event. He explained that “the gain or loss is generally capital in nature” and that could be taxed.
Even if a holder trades their crypto for other assets like Bitcoin (BTC) or Ether (ETH), the EY executive noted that users have a “taxable event and are required to report the gain or loss on the ceded crypto”.
The same goes for non-fungible tokens. “If you bought an NFT with fiat, no taxable event,” Shea said. However, buying NFT with crypto is treated very similarly to a crypto-for-crypto exchange. “Gross proceeds minus your tax base in the asset, usually including any associated fees/costs,” the crypto tax expert said.
Shea also urged people to seek advice from appropriate advisers once they are aware of their tax obligations.
“In an industry where technology serves as the architectural framework, having an advisor who has an accompanying technology solution and who understands your goals will allow you to make the best possible decisions to minimize your tax burden.”
Related: How are cryptocurrency taxes reported?
Meanwhile, in Thailand, crypto traders would be exempt from the 7% value added tax on permitted exchanges. Traders in the country will also be able to offset losses against annual gains.
In February, the Indian government proposed a 30% income tax on crypto income. However, many opposed the proposal, as a 30% crypto tax is almost double corporate tax rates, which hover at 16%.