Tax-Free Crypto Sale in Austria: Avoid These 4 Mistakes

This article is out of date

Due to a legal change, the information below relates only to crypto assets acquired before March 1st, 2021

Avoid these 4 Mistakes

Your profit could be hit by 35%-48% income tax if the requirements for a tax-free crypto-currency sale are not met. In this article, we discuss the most common pitfalls.

Background—crypto doesn’t qualify as capital

In Austria, crypto-currencies do not qualify as currency or capital investments. Instead, they are considered to be intangible assets. This is why the normal capital gains tax (27,5%) doesn’t apply. By principle, the sale of privately owned intangible assets is taxable only during the first year of ownership.

Simple checklist

When it comes to the sale of private assets, there are many tax rules targeting investments, especially real estate and capital. Other private assets, including intangible items such as crypto-currency, are taxable by principle only within the first year of purchase—the so-called speculation period. For other private assets in general, the tax-free sale is possible if:

  • You owe income tax in Austria (this rule is specific for Austria)
  • The asset is in your private property (not part of your business)
  • You purchased this asset more than one year ago (other rules apply to gifts and inheritance) 

For crypto, however, there are a few additional things to consider and ensure that:

  • You own “real” crypto-coins, no derivatives (the nature of the asset)
  • You are not borrowing or lending your coins (the nature of ownership)
  • The crypto-currency has not been exchanged or turned into other assets before (conversion) 
  • You have not obtained the coins by mining (acquired, not created)

In the following, we’ll take a closer look at the crypto-specific requirements.

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Nature of the asset: “Real” crypto-currency

There is a number of brokers that enable you to invest in “crypto-assets”. There is however big difference in tax treatment between the legal modalities. Let’s take the example of capital.com. This broker offers trading (and also fractional trading) of multiple crypto-currencies. However, this platform offers CFDs, or contracts for difference and the portfolio labels refer merely to the underlying assets. When you buy a CFD you acquire a contract, not the underlying asset. CFDs fall under derivatives and are by principle taxed in the capital investment regime—however without the benefit of the lower capital gains tax (27,5%). Instead, the regular tax bracket applies (typically 35%-48%, depending on the annual income).

Better in your own wallet

If you hold your coins in your own digital wallet, by principle you can be sure about your ownership. If your crypto assets are held by your broker, an exchange, or another third party, often a tedious legal tax analysis is required to determine if you own the crypto coins or merely an investment product derived from crypto currency.

Do you want to hear more about other brokers,
such as Bitpanda or eToro?
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Nature of the Ownership: Borrowing

Can I borrow your crypto wallet?—Probably not! However, there have been cases of people handing over their crypto coins to a friend of sorts to exchange them for regular cash. A borrower has possession of crypto-currency as a wallet or individual coins, not true ownership. If the coins are sold for the owner’s benefit, the true owner has to include the sale in their tax filing—regardless of any tax exceptions that the borrower’s country of residence may offer. If the ownership between the borrower and the owner is transferred by a proper sale, the one-year count down till the next possibility of a tax-free sale starts again.

Nature of the Ownership: Lending

Lending crypto-currencies with interest has a strange consequence in Austrian law. According to the governmental documents, crypto-currencies classify as capital investments in the case of interest-bearing arrangements. The capital tax of 27,5% applies to the interest as well as any increase in value. This is not as good as the tax-free sale, but much better than the regular bracket, mostly between 35% and 48%. The timeline of when the crypto-currency was acquired and when this interest-bearing arrangement came into existence plays a big role. It is important to remember that creating arrangements retrospectively, i.e. signing with an older date, to lower taxes is considered fraud in most countries.

Conversion as a premature form of sale

Conversion of crypto-currency into other crypto assets as well as a simple exchange of crypto-currency for another item is considered a sale for tax purposes. If the requirements for a tax-free sale weren’t met at that time, tax for the winnings has to be paid—although no cash was received. The winnings are in simple terms the market value of the asset acquired in the conversion minus the purchase price of the original asset. The same applies to exchange for goods and services and to the conversion for a “normal” currency (e.g. EUR or USD).

This is maybe not the best explanation.
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Acquisition by purchase not mining

Mining classifies as a business activity. Any items resulting from a business activity are by principle part of the business property. A subsequent transition to private property is possible, but further requirements have to be met. This transition often triggers additional taxation—it is not to assume that the transition to private property happened without any proof. By principle, the one-year taxation limitation for private property described above does not apply to business property.

Conclusion

In this article, we discussed the main pitfalls of tax free-sale when it comes to crypto-currencies. The main mistakes are typically made by purchasing an unqualifying asset, premature sale through conversion, and confusing the nature of ownership.

Please note that this article is illustrative and cannot provide all specifics regarding this topic. Your case may differ. We always recommend consulting an experienced specialist before making decisions.

Read more…

– Information on the website of the Austrian Ministry of Finance (link)

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