As of 1 January 2019, the rules on taxation of cryptocurrencies will change. Cryptocurrencies will be taxed on a similar basis as capital gains. What is important, these changes apply to income (revenues) earned as of 1 January 2019. Contrary to previous proposals, the amendments will not apply retroactively as of 1 January 2018.
#1 CRYPTOCURRENCIES AS A VIRTUAL CURRENCY
Until the end of 2018, cryptocurrencies are treated as property rights for the purposes of income tax. As of 1 January 2019, cryptocurrencies will be treated as a virtual currency. At the same time, it has been defined what is and what is not a virtual currency. For the most popular cryptos such as BTC, ETH, LTC etc. there are no major problems with their qualification. In practice, the biggest problem will concern tokens – where it will be necessary to analyse whether a given token can be classified as a so-called security token. In such a case, gains will be settled in a different manner (also at the rate of 19% but the method of settlement and presentation of costs will be different).
#2 REVENUES FROM CAPITAL GAINS – GAINS FROM CRYPTO TAXED AT THE RATE OF 19%
As of 1 January 2019, gains from crypto will be treated as a type of capital gains. This means that regardless of the amount of gains from crypto, they will be taxed at a rate of 19%. At present, the rate is 18% or 32% (if the income is higher than PLN 85,528). Importantly, it will not be possible to offset the loss on crypto against income from other capital gains – e.g. from shares.
The revised classification of the source of income will also affect those who run a business. Until now, gains and losses on crypto generated as part of business activities were classified under the same source of revenue as the so-called operating profits and losses – e.g. from software development activities. They could be offset against one another on an ongoing basis throughout the year (which was particularly significant in the case of a loss on crypto). As of 1 January 2019, gains on crypto earned as part of the business will be reported and accounted for separately from economic activities. Cryptocurrency exchanges and markets will account for their gains and losses in a different manner.
We must also remember about the solidarity tax – i.e. the additional 4% tax. This additional 4% will be paid by all taxpayers whose income (total income from crypto, business activities, etc.) exceeds PLN 1,000,000. An additional 4% tax will be paid on the excess of this amount.
#3 NO TAX ON SWITCHING BETWEEN CRYPTOS (CRYPTO TO CRYPTO EXCHANGE)
Switching between cryptos will be neutral for income tax purposes. This means that there will be no need to disclose revenues and costs resulting from exchanging one crypto for another in the annual tax return. The absence of a tax on crypto-for-crypto transactions does not mean that there is no need to record individual exchanges. Regardless of the tax rules, it is necessary to keep a transaction history. As before, a payment in crypto is treated as a sale of this crypto.
#4 ACCOUNTING FOR COSTS ON AN ONGOING BASIS AND ELIMINATION OF OFFSETTING LOSSES
Another change relates to the principles of cost recognition. Until now, due to the inconsistency of tax authorities, there have been in fact 2 methods of cost accounting. As of 1 January 2019, cost accounting rules will be (relatively) clear.
According to the new regulations, costs will be defined as expenses incurred directly for the purchase of cryptocurrencies and costs related to their disposal (sale, payment for goods/services, etc.). The Act clearly states that by purchasing a crypto at an exchange we also have the right to recognise costs, provided that we are in possession of documents confirming the purchase. In my opinion, the transaction history from the exchange will be a sufficient proof.
Costs that are not used in a given year may be carried forward to the following year. The regulations are vague and if interpreted in an unfavourable way, the tax authorities may claim that the costs are carried forward only to the “following” year. Such an interpretation would mean that costs would be forfeited if carried forward over several years.
IMPORTANT: the carried-forward costs of purchase/acquisition of crypto must be reported for the first time in the PIT return for 2019.
At the same time, the regulations introduce a ban on offsetting losses. This will matter especially if we decide the stop trading with a loss position.
#5 GAINS FROM MINING IN 2019
As before, gains (income) from mining will be accounted for only when the crypto mined is sold. The difference, however, lies in the determination of costs. The legislation indicates that only the direct costs associated with the purchase of crypto can be recognised as costs. This may lead to doubts as to the recognition of, for example, the value of mining equipment as costs.
2019 will see a lot of developments in the taxation of crypto. The introduction of relatively clear rules will certainly have a positive and stabilising effect on this sector. Another issue is that these developments are not always beneficial.
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