Manncoin

[John Wright]

2 minutes ago, Aislinn said:

In the UK profit from a trade is taxable as income not CGT. Are you saying that if something doesn't qualify as a trade in the UK (but qualifies for CGT) it might actually still qualify as a trade in the IOM because CGT doesn't exist on the IOM?

That doesn't seem right. Why should the existence of another tax change the determination on whether something qualifies as a trade or not?

Because the introduction of CGT introduced a different tax, with different rules, for certain transactions. And as I’ve shown above for an identical transaction there can be three different treatments.

I passed my revenue law module in my degree, neither I nor Phil Dearden are starting from a position of no knowledge.

the HMRC web site has this interesting guidance ( I stress guidance, not law ). I’ve highlighted the relevant bit.

“What counts as an allowable cost

You can deduct certain allowable costs when working out your gain, including the cost of:

• transaction fees paid before the transaction is added to a blockchain
• advertising for a buyer or seller
• drawing up a contract for the transaction
• making a valuation so you can work out your gain for that transaction

You can also deduct a proportion of the pooled cost of your tokens.

You cannot deduct costs:

• you’ve already deducted against profits for Income Tax
• of mining activities (like equipment or electricity)”

those bold, italic, underlined words show that in some cases you can set of costs against income tax when you trade Bitcoin. You can only do that if your profits from your Bitcoin activities are subject to income tax. So HMRC clearly anticipate that in certain circumstances Bitcoin profit can be taxed as income.

[John Wright]

5 minutes ago, Roger Mexico said:

But that rather implies that 'hobby traders' such as @trmpton are operating as proper traders as they are certainly intending to make a profit.  And so they would have to be taxed as such.  Obviously the same would apply to stocks and shares and not just cryptocurrencies and possibly even to hardware hobbies - where the objects of trade are rare vinyl or cigarette cards or Old Master paintings.

To some extent this is another example of the law not really catching up with the internet which allows much greater ease of trading for all such things, so that amateurs can behave as professionals.  Owning shares is no longer about occasionally ringing up your broker after reading something in that morning's Times.

As with a lot of tax law (see our old friend avoidance v evasion) the current law on trading seems to be very much a 'smell test' there's no fixed rules where you can say that such or such a portfolio of activities is taxable trading or not.  

No. It’s but one aspect.  A hobby trader isn’t doing it in sufficient volume, sufficient value, sufficiently frequently. The profit motive is evidenced from the surrounding circumstances.

Its actually an example of how flexible the law is.

But you’re right, it it looks like a duck, waddles like a duck, quacks like a duck, it’s a duck!

I possibly have the largest private collection of Knox Liberty pewter and silver on island. I’ve never sold. Just bought. When I sell it’ll be all at once when I downsize. It won’t be taxable. 

But if I was actively buying and selling every day it’d be income, and taxable on profit.

If I did it in UK it might be CGT or Income Tax. Would depend on the various factors. Mixed question of law and fact in each case.

[Aislinn]

9 minutes ago, John Wright said:

Those bold, italic, underlined words show that in some cases you can set of costs against income tax when you trade Bitcoin. You can only do that if your profits from your Bitcoin activities are subject to income tax. So HMRC clearly anticipate that in certain circumstances Bitcoin profit can be taxed as income.

To clarify, I'm not arguing that some circumstances bitcoin activities could be taxed as income. There are many ways in which bitcoin could be involved in a trade - in that very document they talk about mining and the like. The existence of those bold underlined italic words just don't really do much to counter the case law, as well as the other guidance that suggests unless in the case of exceptional circumstances, individuals buying and selling shares does not count as a trade.

 

13 minutes ago, John Wright said:

Because the introduction of CGT introduced a different tax, with different rules, for certain transactions. And as I’ve shown above for an identical transaction there can be three different treatments.

I passed my revenue law module in my degree, neither I nor Phil Dearden are starting from a position of no knowledge.

So just to be sure, you are saying that the existence of CGT changes the determination of whether some activity qualifies as a trade or not?
 

[John Wright]

6 minutes ago, Aislinn said:

1. To clarify, I'm not arguing that some circumstances bitcoin activities could be taxed as income. There are many ways in which bitcoin could be involved in a trade - in that very document they talk about mining and the like. The existence of those bold underlined italic words just don't really do much to counter the case law, as well as the other guidance that suggests unless in the case of exceptional circumstances, individuals buying and selling shares does not count as a trade.

 

2. So just to be sure, you are saying that the existence of CGT changes the determination of whether some activity qualifies as a trade or not?
 

1. All I’m saying is that buying and selling Bitcoin, assuming a profit is made, can be subject to income tax, CGT, or no tax at all in the UK, or income tax or no tax here. It depends on the circumstances.

2. CGT determines whether some activities are subject to CGT and removes certain anomalies whereby profit is made at a level of activity that wouldn’t attract income tax in the UK. But as we don’t have CGT IOM law is different and you can’t rely on the UK cases interpreting different laws. So you answer your question directly, yes, of course it does. It brings more activity into the tax net. But it doesn’t stop the profit from the same activity being taxed as income in some cases, and as a capital gain in others. It’s all down to the facts of each case.

I only posted my original post to point out that the assumption that profits from Bitcoin were tax free was, in certain circumstances, wrong.

[Aislinn]

I see. I fully agree with you on point 1. I was trying to go a step further and figure out the likelihood of trmpton and others on this forum are liable for income tax, instead of just keeping it at 'it depends on the circumstances'. As part of this I shared some government guidance and I thought you were dismissing its validity with your own understanding of the law. My apologies if that wasn't the case.

With regards to point 2, I really don't believe that CGT liability affects the assessment of whether or not an activity qualifies as a trade. My understanding is that if an activity is a trade, it is taxed as income. If not, it may still be taxed on the rules put forward in capital gains tax legislation. Given that this legislation doesn't exist on the isle of man, and the assessment of whether or not an activity qualifies as a trade is likely to be the same in both countries, the fact that CGT doesn't exist on the IOM shouldn't affect the applicability of the UK case law. It isn't at the discretion of the tax authority to decide that given HMRC would have still have been able to collect some revenue from CGT it would be only fair for the IOM to classify something as a trade that otherwise wouldn't have.

However, I'm not well versed with the intricacies of how CGT is applied so I could very well be wrong about this. If you know of an example where CGT has been payable instead of income tax despite a determination of a trade then this would prove me wrong.

Either way, I hope this discussion will at least have been helpful to some on the iom to make a more informed decision about their tax liabilities regarding buying and selling shares and cryptos, and a quick email to the income tax department for clarification probably can't harm.

[Roger Mexico]

2 hours ago, John Wright said:

No. It’s but one aspect.  A hobby trader isn’t doing it in sufficient volume, sufficient value, sufficiently frequently. The profit motive is evidenced from the surrounding circumstances.

Its actually an example of how flexible the law is.

There's a danger here though (as with avoidance/evasion) of circular definition.  Something counts as hobby trading because it isn't liable for tax - and it isn't liable for tax because it's hobby trading.  But the question is still in what circumstances trading stops being classed as 'hobby'.

Case in the UK such as Salt v Chamberlain and more recently Manzur v Revenue & Customs [2010] seem to take quite a lot of notice of the number of transactions, about one a week in the first and 200-300 a year in the latter.  If people are going much over that and depending on other indicators it might be different.

Of course what also linked those two cases was that the trader wanted the trades to be 'official' so they could claim back on their losses, rather than that they were trying to avoid income tax on any earnings (and they would have had to pay capital gains even if they had been successful.  In other circumstances (such as the Isle of Man with no CGT) tax authorities might take different attitudes.

[Phillip Dearden]

3 hours ago, Aislinn said:

So I think it seems unlikely that trmpton buying and selling cumrocket will be classified as a trade, given the case law Salt v Chamberlain and A Ali v HMRC. Ofc IANAL, speak to a tax solicitor if this actually concerns you.

 

You have all been busy while I was out. In the interests of brevity I will only respond to the main points and I will do that in bite-size chunks.

I agree that it is very unlikely virtual currency transactions will be taxable.

The cases referred to are confusing as Ali was actually allowed to use his losses as taxable losses as it was accepted he was trading. Mr Salt was held to be speculating or gambling and this was not taxable. I suspect an IOM VC holder is more likely to be taxed like Mr Salt ie not taxed. However, if you lose money you could try, like Mr Ali, to claim a tax loss.

 

 

[Phillip Dearden]

4 hours ago, Aislinn said:

I believe investments are solely with the intention to make a profit and, on the isle of man, are not taxed as income.

 

Generally, yes.

You do need to be clear what you mean by profit. Some investments are acquired to earn a profit from a yield ie interest, dividend, rent etc and you would expect an ultimate sale to be capital. However, sometimes an acquisition is more tactical and a profit on sale, perhaps short-term, is the target and this is where you need to consider if the profit is a trading item.

[Phillip Dearden]

3 hours ago, Aislinn said:

In the UK profit from a trade is taxable as income not CGT. Are you saying that if something doesn't qualify as a trade in the UK (but qualifies for CGT) it might actually still qualify as a trade in the IOM because CGT doesn't exist on the IOM?

That doesn't seem right. Why should the existence of another tax change the determination on whether something qualifies as a trade or not?

You do ask a good question here. The determination of a profit as trading or capital gain should be based on old case-law or practice and I would normally expect the same conclusion in the IOM or the UK. However, there can be differences.

In the UK, this discussion will determine which tax applies and whilst there may be a different calculation, with different deductions and allowances and a different rate of tax, it is still a choice between two types of tax. In the IOM, the choice is more binary, between taxable or not. This does make taxpayers more interested and tax authorities more sensitive.

In the longer run, the lack of capital taxes has caused the IOM to introduce legislation to tax certain capital profits as income and, for strange reasons, similar or opposite provisions exist in the UK.

In the IOM, some investment capital profits are taxed as income and some distributions on liquidation, which look like capital to an accountant, may be taxed as income.

Similarly, in the UK, some capital investment profits, are taxed as income eg chargeable events on insurance bonds and the disposal of "roll-up" funds.

Whether tax will apply, should not determine whether a transaction is a trade.

[The Voice of Reason]

I’ve got a few tulips for sale if anyone is interested.

[mad_manx]

34 minutes ago, The Voice of Reason said:

I’ve got a few tulips for sale if anyone is interested.

Only if they are on the blockchain 

 

On a serious note many people compare cryptocurency with the Tulip mania of the 1600's .  I don't think there would have been a bubble if everyone who was buying into it knew how many tulips existed and how much each person had .

Is crypto overvalued at the moment.Probably many of them  are and many may not be 

Will the bubble pop. Of course there will be bubbles and subsequent market corrections on the way.  Thats how stocks have behaved as well 

One thing which many forget when comparing the growth of cryptocurrency markets to the stock markets is that most of the 7 billion plus people on earth have access to it with only a few exceptions. Many of these people do not have access to a relatively stable currency either. 

Which is why I'm fairly confident of a bitcoin price of over 1 million USD in the next decade or two..

There are potential risks like attacks on the network which could make the whole network unreliable.. 

 

 

Edited May 7, 2021 by mad_manx

[Aislinn]

I appreciate those responses @Phillip Dearden, thank-you.

I wasn't aware of those nuances between the UK and IOM tax law with specific legislation taxing certain capital profits as income, that's interesting. I can imagine they were passed because of a significant amount of capital was using those avenues without paying tax.

But it's good to get confirmation that determining whether a transaction is a trade is independent of whether or not tax will apply. I also appreciate you sharing your impression of the likelihood of virtual currency transactions being tax liable, it's good to hear a second perspective as I'm not at all experienced in this area so I don't put too much weight on my own judgement.

[Phillip Dearden]

40 minutes ago, Aislinn said:

I appreciate those responses @Phillip Dearden, thank-you.

No problem.

40 minutes ago, Aislinn said:

I wasn't aware of those nuances between the UK and IOM tax law with specific legislation taxing certain capital profits as income, that's interesting. I can imagine they were passed because of a significant amount of capital was using those avenues without paying tax.

I don't know numbers but I do believe they were all implemented to plug perceived gaps.

 

39 minutes ago, Aislinn said:

But it's good to get confirmation that determining whether a transaction is a trade is independent of whether or not tax will apply. I also appreciate you sharing your impression of the likelihood of virtual currency transactions being tax liable, it's good to hear a second perspective as I'm not at all experienced in this area so I don't put too much weight on my own judgement.

I don't think anyone is an expert, yet.

[2bees]

Thank you all for your informative and insightful replies. All too often threads on here turn into “yo momma” playgrounds. This is a bloody great thread, aye just like ones from the good old days.

I read somewhere (on Twitter) that Elon Musk is trying to have a big impact on the banks with the DOGE pump. It’s an interesting thought train.

The whole process of bit coin is a bit of a ride, buying cake, swapping pancakes, getting 3million of something for $20, it’s a bit of a laugh. 
 

I wouldn’t mind paying tax on any winnings but I would be deducting all the 10p’s I put in machines back in my teenage years. Same thing, put money into machine, get money out (or not as the case usually was).

To the moon 🚀🚀🚀

[Chie]

On 5/6/2021 at 4:52 PM, trmpton said:

60 percent in a week on revolut which is easy to pull money back out of in a well established crypto.  

I opened a Revolut account and did buy some crypto through it and then sold it again shortly after when I realised that you don't actually buy the coin itself. Aka you don't own it. If Revolut decided for some reason to lock your account or it went under then you loose your investment. I use Binance to buy and Ledger Nano X wallet to store at the min.