Money’s a funny thing. I hand over a piece of plastic with “ten dollars” written on it, and someone gives me a coffee – and hopefully some coins too. Our financial system runs on the shared belief that this plastic is worth more than its physical value.

Cryptocurrency takes that idea further. Instead of physical tokens, it’s data that is deemed to have value. Like money, cryptoassets are worth something because two people agree they are. But despite being a credible imitation, it isn’t money according to Inland Revenue. To them, cryptoassets are property – more like gold than cash, except you can’t make jewellery with it.

Since they have no other purpose than to be exchanged for something else, Inland Revenue assumes you buy cryptoassets to sell at a profit later. That makes them “revenue account property,” meaning any gain is taxable. 

The key takeaway? Selling cryptoassets is almost always taxable – even if you’re swapping one crypto for another, or you only transact occasionally. Unless you can prove you bought cryptoassets to earn passive income, Inland Revenue assumes you intended to profit from the sale.

Some taxpayers recently tried to argue they bought a cryptoasset because they expected it to generate passive income in the future. It did create income eventually, but Inland Revenue said this wasn’t enough to prove that was the primary reason they bought it. The Tax Counsel Office backed them up, saying the claim was too much of a stretch in light of surrounding circumstances.

So far, Inland Revenue’s stance on crypto has been aggressive, and unchallenged. If this latest case goes to court, that might change.

And if you think Inland Revenue can’t track your crypto sales, don’t count on it – their data access and analysis capabilities are growing fast. If you think you should have paid tax on cryptoasset sales, or you’re not sure, get in touch with us. 

Alex Cull, Tax Partner, Greenhawk

[email protected] 

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