Fact: Countries disagree on the nature of cryptocurrency. In recent years, tax and revenue authorities worldwide have had to take a stand and issue guidance to their taxpayers on their country’s official position on cryptocurrency—What is it, and how should it be taxed?
The result is mixed:
- Canada – it is a commodity, not currency, and is taxed as property
- Germany – it qualifies as units of account and is therefore a financial instrument, taxed like any other currency
- United States – it is personal property, and each transaction results in a capital gain or loss
- Australia – transactions are viewed as barter arrangements and cryptocurrencies are considered assets for capital gains purposes
- South Korea – transactions are financial transactions taxed as capital gain or miscellaneous income
Jurisdictions that define cryptocurrency differently will have conflicting views on the timing of taxable events, the nature of the resulting income (ordinary or capital), and the sourcing of the income (Country A or B), yet international tax treaties do not yet have provisions to resolve these differences.
As a result, depending on how the jurisdiction defines and taxes cryptocurrency, cross-border individuals who are subject to taxation in multiple jurisdictions may have significant issues claiming foreign tax credits to offset double taxation.
For now, taxing authorities are still focused on sorting out the tax treatments in their home country, especially as initial coin offerings, chain splits, air drops, token swaps, giveaways, and other events present new complexities. Consequently, it may be some time before the international tax challenges are resolved.
