Six Things I Learned From Investing In Bitcoin

15 responses to “Six Things I Learned From Investing In Bitcoin”

1. 

   grunt

   December 20, 2017

   One thing I’d add is that you need to be aware of other commitments you’re getting into. Like taxation.

   Like Uber and AirBnB, bitcoin is a disruptive technology, and causing various levels of issues with the standard way of doing things. That doesn’t mean they’re bad by the way, just that they blur the lines so the treatment isn’t so easy.

   With Uber for example, standard rules means getting an ABN, etc if they drive just one fare. Normally, not a problem for a taxi driver, but Uber’s ease of entry means plenty of people try it and stop, so theres potentially an unnecessary amount of paperwork needed for essentially $20. Nobody wants that.

   AirBnB are essentially considered the same as hotels, so have similar regulatory issues. Point is, with these disruptive technologies, there are often pitfalls that the ease of entry wont make apparent.

   With bitcoin, its still considered an investment, so when you eventually cash them in, any profit will be taxable. Think of them as shares. Main issue is that anyone that’s really cashed in on them may be in for a nasty surprise from Mr Taxman when they sell them.

   So learn up and see what records you need to keep. There will be capital gains tax issues when you sell.

   Log in to Reply
   1. 

      stargrinder

      December 20, 2017

      Good comment! Will indeed be interesting when tax laws catch up. Currently it says things like “may” and “business” so no idea what individuals will have to deal with…

      https://www.ato.gov.au/General/Gen/Tax-treatment-of-crypto-currencies-in-Australia—specifically-bitcoin/

      Log in to Reply
      1. 

         grunt

         December 20, 2017

         They’re a good example of disruptive technology. Because they can be used for capital purchases, or daily ones, the same rules cant be applied every time. It depends on every use.

         Right now, people that are jumping on the bandwagon are doing it to make a profit. The intention is essentially the same as investing in the stock market, so I’d expect taxes would need to be paid under capital gains tax laws.

         On the other hand, if some lucky bastard was getting paid in bitcoins, then converting them to cash wouldn’t be a capital event. They don’t have them as an investment, but as a payment. So income tax laws would kick in instead.

         Theres no way the general population can follow that either. Which makes them a pest 🙂 And why vague works like “may” are used.

         Log in to Reply
   2. 

      stickman

      January 9, 2018

      With bitcoin, its still considered an investment,

      If your holding is below $10K and you didn’t buy it for investment, it’s ‘personal use holdings’ and not investment, and not subject to any taxes.

      How you and ATO will decide on if your purchase was investment or not, I cannot say….

      Log in to Reply
      1. 

         grunt

         January 9, 2018

         Don’t want to type a long reply, but the personal use angle probably wont work. That’s intended to take physical stuff you buy once a decade out of the tax system, not take financial stuff out of the system.

         Furniture, household goods, boats, etc, not financial investments. I get the personal use angle when its being used like a paypal account, and that use shouldn’t get hit, but what about that person that simply sees the dollars and decides they can use it for better things? I can see that being decided as a capital gains event, and being taxed.

         I was just saying that its better to check, and get it in writing if they can, than be caught out by some rule that can fall either way.

         Right now, the system is trying to apply black and white rules to something that’s anything but.

         Log in to Reply
         1. 

            stickman

            January 10, 2018

            No I mean ATO has literally released guidance specific to cryptocoin. If you buy <$10K worth and use it ‘for personal use’ (an example is purchasing stuff using Bitcoin) then it’s a personal asset and no CGT, GST, other taxes apply.

            If you bought the crypto with the intent to ‘invest’, then immediately any gains are subject to CGT.

            So long story short, the ATO is being a typical gov organisation and saying “anything investment, pony up the tax”. Entirely up to you what you do with that information,…… maybe you bought some Bitcoin and it just HAPPENED to have doubled in value, and then you changed your mind and sold it back for dollars …….. (I’m not lawyer)

            https://www.ato.gov.au/General/Gen/Tax-treatment-of-crypto-currencies-in-Australia—specifically-bitcoin/

            “Generally, there will be no income tax or GST implications if you are not in business […]”

            “Where you use bitcoin to purchase goods or services for personal use or consumption, any capital gain or loss from disposal of the bitcoin will be disregarded (as a personal use asset) provided the cost of the bitcoin is $10,000 or less.”

            Log in to Reply
            1. 

               grunt

               January 10, 2018

               I think you’re misunderstanding the part you quote. Its talking about the value of the bitcoin used in buying personal use stuff, not the selling of anything left over.

               Say you buy something worth $2000 with bitcoin. That 0.15 bitcoin (or whatever it is today) isn’t subject to any taxes, and its that 0.15 they’re referring to. Using it to buy something is the disposal.

               If someone spent $1000 on bitcoin a year ago, to use like a paypal account, they might have only done a couple of things through the year, and still have 0.9 bitcoins in their wallet.

               Converting that back to cash is also a disposal and the one I’m talking about, and in the determinations mentioned at the bottom of that advice is one that says that yes, its subject to ITAA 108-5 rules on CGT. That’s not the same type of disposal the part you quoted is talking about though.

               How you’re reading it is understandable, but its why I’m saying that people need to be careful. Its easy to read something like that and misunderstand whats said, like the term disposal. It means many different things, especially under tax law and barter type exchanges like how bitcoin is viewed.

               Just be careful is what I’m saying. Plenty of people over the years have assumed one thing and been caught out. With crypto’s, the growth rate means the cost of being wrong is pretty big.

               Its probable that most people are safe, one of the key things that gets looked at is whether it would be considered a source of income, but even there it gets grey. Sell part of that remainder at various points, and keep a balance that keeps growing, then cash a bit more out, and suddenly its ticking other income rules.

            2. 

               stickman

               January 10, 2018

               Yeah and I agree with you to be careful.

               Here’s the part on selling (disposing):

               “If you have acquired bitcoin as an investment capital gains tax could apply”
               – If you have >$10K it applies regardless, however key words here are “investment”.

               “However, if your transactions amount to a profit-making undertaking or plan then the profits on disposal of the bitcoin will be assessable income. ”
               – did you undertake to make a profit, and/or did you have a plan?

               It’s worded so vaguely on purpose, so they can nab you if they want. Once nabbed, good luck fighting it. I mean, the case can be made that “I bought some, it went up, I happened to sell it, it’s outside your own rules” very very easily due to the vague phrasing, but this is the government so any such fight will be uphill at best. It along with the rest of the taxation law is designed as a catch-all. The status quo i: “did you get money? Declare it.”

            3. 

               grunt

               January 10, 2018

               For disclosure, I work in the ATO, and can tell you its not so we can “nab you” if we want 🙂 It really IS a massively grey area. If they want to nab something, they make the position as clear as possible so there are no excuses.

               There aren’t words like “could”, “may”, or “possibly”. Those alone mean it creates uncertainty, which is enough at least to remove any chance of penalty at least if you are wrong. But not the taxes, which is going to be big enough to sting.

               Vague terms are there because they cant be specific, and to someone with 25 years technical experience, its scary to see them used. We don’t like vague, its a loophole and this ones a big one. Which is why I keep saying to be careful. This just does not happen very often.

               And with bitcoins, the key vagueness is purely down to when you convert whatever bitcoin you have left over back into real money. What you do with bitcoins before that, it seems fairly clear either way what the rules are, and what you say looks the case. But that cashing out, I dunno. When I look at the guidance paper, I see it different to you, and from the inside looking out, it screams to me that people need to be careful.

               Nobody I know has a straight answer, and that’s mostly because it comes down to a case by case basis, and possibly even an auditors personal view. Which scares me when the uncertainty comes from some of our smartest people.

               Government departments have rules and red tape for a reason, and part of that is legislation, which is meant to make it crystal clear whats meant to happen.

               Its also a sign of the times that this is happening across a range of things all at once. When you have crypto’s, ridesharing, AirBnB, deliveroo/uber eats all upsetting the normal rules in a short time frame (and other things), its a good kick up the bum to modernise the rules accordingly.

               Good chat by the way, thanks for revisiting it. By the way, people will laugh, but the ATO really just wants people to pay the right amount of tax. No more, no less. And publishing the sorts of guidance you referred to is how they try to help people get it right. But it cant cover everything, especially in areas that need those sorts of guidance.

      2. 

         travi

         January 10, 2018

         What if I bought some bitcoin to pay a Cryptolock hacker, then had some remaining from years ago and ignored as value was just a few dollars, but then blew-up big? I did not buy it for an investment. :/

         Log in to Reply
         1. 

            stickman

            January 10, 2018

            Yeah exactly. Under the wording, you don’t have to pay any taxes if it’s <$10K value.

            You can see in the link that there’s provision for using it for payments etc.

            Still, just like police who can arrest you for anything at all, ATO’s vague wording allows it to say “we deem this investment” and you gotta fight it. Chances are probably pretty low though if you’re <$10K anyway – they should have bigger fish to fry.

            Log in to Reply
2. 

   sa_penguin

   December 20, 2017

   Sounds like anyone with Bitcoin should follow the setup of Prime Minister Turnbull: put your money in a company in the Caribbean / Cayman islands, then pay yourself a salary.

   Profits from trading are kept in the offshore company account, and the company pays company tax on them – which happens to be zero in those countries. You only pay tax on the income your company pays you.

   Log in to Reply
3. 

   zimbyzim

   December 20, 2017

   Finally a bitcoin article that highlights the absurdity of the validation process.
   Every article i read says how easy it is to get into Bitcoin, this is not always the case, especially if you want to eventually sell/trade it.
   I chuckled about the wife taking the photo as I found myself in this exact situation, Ironically I’ve never needed a photo outside of standard Identification documents to purchase assets, this includes assets over 1mil.

   Log in to Reply
4. 

   bumblebee_tuna

   January 9, 2018

   My number one question I have more people investing in Bitcoin is how easy is it to dump all your bitcoin and make it usable to you?
   Most don’t realise that there are often limits to how much you can sell for $, which limits the attractiveness of being a ‘bitcoin millionaire’ but you can only access that million at a set rate, which will fluctuate depending on how else the market is going. The main exchanges put holds on selling bitcoin during the fall at the end of the year so there is always the risk of your exchange vanishing (as has happened on numerous times).

   As with any investment, don’t invest anything you can’t lose, make hay while the sun is shining because its going to be a big storm that wipes it all out sooner than later.

   Log in to Reply
5. 

   travi

   January 10, 2018

   I do not think it is very hard to take a photo of yrself or ID. Infact it made me feel much safer and trust the system even more. I do agree sending bitcoin with those addresses is scary though. I scanned a QR once and it was wrong. I would not trust QR codes for wallets. :/

   Log in to Reply