The tax facts you need to know about crypto assets

In the early days, governments looked at cryptocurrency in the same way they might have looked at Beanie Babies.

Some people were claiming they were getting rich but officially it was seen as a passing fad and the market wouldn’t hold value. Their worth was only tied to what people might pay for an accessorised stuffed animal. One company manufactured them, meaning they could control their worth simply by dumping new ones into the market or taking others out of production.

Eventually, beyond a few rare collectables, prices collapsed as the market for Beanie Babies fell away. Which is what some commentators thought would happen after the 2017 crypto bubble and the 2018 crash, which saw Bitcoin’s value plummet by 80 per cent from its peak.

By November 2021, Bitcoin’s price had recovered to €56,278, whereas it had once sat just below €3,000 in late 2018 during what became known as the “cryptowinter”.

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The boom saw international regulators, including the Central Bank of Ireland, issue warnings about the “risky and speculative nature” of crypto assets.

Retail investors could lose a lot of money, and fast, owing to the volatile nature of an unregulated market.

This year saw the European Union finalise rules to protect European consumers and to stop crypto assets that are stored in software or hardware wallets, as opposed to banks, being used to launder money and finance terrorism.

The Markets in Crypto-Assets (MICA) regulation will introduce a new regulatory framework for European crypto assets. Critically, MICA aims to protect investors and ensure financial stability while allowing innovation and fostering the attractiveness of the crypto asset sector.

Some exchanges such as Coinbase have already been co-operating with the Central Bank as a registered Virtual Asset Service Provider.

But what about the average Irish crypto-investor, who instead of making heavy losses or falling victim to scams, actually did quite well? What are the rules around paying tax on gains made on crypt oassets in Ireland?

A Revenue spokesperson told The Irish Times “a trade in crypto assets is ... treated, for taxation purposes, in the same manner as a trade in any other kind of asset”.

For example, any profit made by selling Dogecoin on an international exchange would most likely, depending on the circumstance, attract the same capital gains tax as selling a field in Ballinrobe.

During a Dáil debate on tax avoidance last year the then minister of finance Paschal Donohoe made it clear the government had no appetite to treat cryptocurrency differently from other things we buy and sell to make money.

“No separate strategy is required currently in respect of cryptocurrencies and non-fungible tokens in order to prevent tax evasion, avoidance or money laundering,” he said, reasoning that existing tax legislation, case law and anti-money laundering laws were already doing the job.

Revenue guidelines on cryptocurrency point to existing rules around trade, shares and securities, such as what constitutes a trade and when capital gains tax (CGT) or income tax applies.

According to Richard Lalor, an accountant and principal with Lalor and Company in Wicklow and a self-described cryptocurrency “enthusiast”, the lack of specific crypto asset rules can make things complicated because of the unique way the crypto market operates.

“Not all crypto is a ‘share’. For example, Bitcoin is seen as a commodity by the SEC [the Securities and Exchange Commission in the US],” he explains.

“The important thing to know is crypto will be treated in the usual manner.,If it’s deemed a disposable asset then CGT will apply, if it’s income, income tax will apply.”

Profits and losses from trading versus selling an asset are subject to different tax treatment.

Revenue examines the individual facts of the case, “the interpretation of the latter in the context of case law and lastly, the Badges of Trade” when determining which should apply, according to a spokesperson.

However, crypto’s “manic nature”, according to Lalor, may confuse people about their activity being considered as a trade.

“One of the six Badges of Trades used to assess a case is frequency of transactions but people are trading in insane volumes, chronically buying and selling crypto in small trades,” he says. “I suppose in another theory it could be seen as trade but in reality it’s unlikely to be so.”

Revenue told The Irish Times that “in most cases, it is likely that an individual will be holding crypto assets for personal investment purposes rather than for trading purposes and capital gains tax treatment will apply”.

This means anything you make on cashing out a crypto asset minus the purchase price and any fees is subject to a 33 per cent tax.

For example, Jess bought 0.5 of DustintheTurkeycoin for €500 and sold it at €1,000, paying a 0.5 per cent trade fee per transaction. She would calculate her taxable gain by subtracting the purchase price of €500 and fees of €7.50 from her €1,000 to get €492.5. Which would mean her tax bill for that gain at a 33 per cent rate would be €162.52.

As usual, CGT losses may be used to offset gains.

However, Lalor says it’s important to understand that even if a crypto asset isn’t cashed in and put in a bank account it could still attract tax.

If a profit is used to buy another crypto asset – a different coin – “the gain is still crystallised” even if it’s held in the wallet.

“When something is sold regardless of whether it’s remitted back to a bank account or not it’s still liable on tax,” he says.

But if crypto-wallets aren’t technically held in Ireland and if Revenue doesn’t know about your tidy little gains, what then?

It would be unwise not to declare the gain, according to Paul Russell, an accountant and crypto-tax specialist with Ardagh Consultants.

“People have heavily invested without considering tax implications,” he says, warning that while tax crackdowns on crypto haven’t happened yet, it doesn’t mean they won’t.

“In our view we see it a little bit like what happened with Airbnb, people thought they were sheltered ... but what did they do? They turned over the books on first request,” Russell says, referencing new legislation in 2021 that required users letting property to give their PPSN to Airbnb, who said they would share it and earnings data with Revenue.

“Revenue have taken little interest in crypto but are starting to realise people are making money out of it, once that happens and they get their teeth into it and there could be a free for all,” Russell says.

Lalor also warns that crypto exchanges would be likely to eventually co-operate with Revenue, providing information on request regarding users and trades.

An EU-wide data sharing directive aimed at improving tax transparency in crypto is due to come into effect on January 1st, 2026.

The measure targets tax cheats by “requiring all crypto asset providers based in the EU – irrespective of their size – to report transactions of clients residing in the EU’', according to a release from the European Commission in May this year.

People sitting on gains are encouraged to “come clean” as soon as possible.

Revenue may be able to look back through trades and gains made in previous years, which could result in penalties and fees for late payment being applied.

“The statutory interest on unpaid tax is 8 per cent per annum so if you go back three to four years in someone’s wallet from 2026 and Revenue decides the interest or the penalty applies plus a late-filing penalty, the gain could be wiped out completely,” Lalor says.

Another disincentive to hide crypto-earnings is tax compliance requirements when it comes to getting a mortgage.

This is a problem given that Millennials and Gen Z – who are most likely to trade crypto – are the same people trying to buy their first homes.

If someone thought their tidy €30,000 profit from the 2021 crypto boom could be plonked down as a house deposit without the bank asking questions, they may be in for a shock, according to Russell.

“If you went to any bank in the old days, if your wanted to borrow to buy a house or a car it was all about repayment capacity but now it’s savings and tax compliance – if you cannot show tax compliance, you’re not getting that loan as simple as that.” he says. “We [accountants] cannot give tax compliance letters to banks unless people are legitimately tax compliant.”

The number of people getting into trouble for undeclared crypto assets in Ireland in previous years is unknown.

When asked, Revenue said “it is not possible ... to extrapolate statistics on the number of penalties notices or audits arising from crypto asset activity” because crypto assets “are not subject to differential tax treatment or reporting rules compared to other assets”.

It could not provide figures on the rates of people declaring crypto assets for the same reason.

For crypto-enthusiasts looking to get tax compliant, the advice from the specialists is to seek professional help.

Also, maintain records of trades, which can be tricky given the use of multiple wallets and high volumes of trades.

Crypto-tracking software such as Koinly or Cointracker can help stay on top of what was being traded where and for how much.