Bitcoin and cryptocurrencies
The introduction of Bitcoin and other cryptocurrencies is a new and evolving subject in which the legal and regulatory environment is emerging.
In particular it seeks to provide guidance on the tax treatment of:
- the mining of cryptocurrencies
- the exchange to and from conventional currency and other cryptocurrencies
- the use of cryptocurrencies as a method of payment for goods and services
It is possible that as the legal and regulatory environment changes there may be a requirement to adapt the tax treatment and / or provide further examples of the way in which transactions involving cryptocurrencies should be treated.
To enable taxpayers to place reliance on this guidance, it is envisaged that any changes that may be necessary will only be applied from a prospective date.
Income tax treatment
Cryptocurrency mining on a small or irregular scale will not generally be regarded as a trading activity. The act of mining alone will not make you liable for income tax. Any costs associated with mining will not generally be deductible as expenses of trading.
There may be exceptions to this treatment where mining activities are accompanied by trading in cryptocurrencies on a sufficiently commercial scale that they would be regarded as trading on application of the "Badges of Trade" principles.
In such cases, it may be advisable to seek professional advice and where doubt remains a submission may be made to the Taxes Office providing all relevant information.
You can find out more about the "Badges of Trade" principles on our "Am I trading?" page.
Am I trading?
Businesses exchanging cryptocurrencies to and from conventional currencies and other cryptocurrencies will be liable to income tax if they are considered to be trading.
Exchange of cryptocurrencies to / from conventional currencies and other cryptocurrencies by incorporated and non-incorporated entities, will only give rise to an income tax liability where the features of trading are met.
In other cases, for example, occasional transactions giving rise to exchange gains/losses upon the disposal of cryptocurrencies, there will be no taxable profit/loss arising and no allowance for expenses relating to such activity.
The profits and losses of an incorporated or non-incorporated business engaged in Bitcoin or similar cryptocurrency transactions must be reflected in any accounts and will be taxable under normal income tax rules.
This means that trading transactions in which the payment or receipt is in a cryptocurrency need to be converted to the currency of the accounts (eg sterling), in accordance with the existing tax rules applying to conventional currencies.
Where the accounts are stated in a currency other than sterling, any profit or loss will need to be expressed in sterling for tax calculation and assessment purposes.
GST treatment of Bitcoin and similar cryptocurrencies
The value of any supply of goods or services which are bought with cryptocurrency must be converted to sterling for GST purposes at the date of transaction.
For example, if goods are sold by a GST registered entity where the cost is paid in Bitcoin, the value (for GST purposes) will be the sterling value following conversation at the rate that the seller has applied to the transaction.
This may be the price at which identical goods are sold to purchasers paying in sterling on the same date, or if a premium is included in the conversion rate it will be the total amount which the seller requires to be paid to enable the sale to be made.
Income received by GST registered entities from cryptocurrency mining activities will generally be regarded as outside the scope of GST on the understanding that the activity does not constitute an activity "in the course or furtherance of business" (Article 6 of the GST (Jersey) Law 2007).
GST law, regulations and directions
No GST will be due where cryptocurrencies are exchanged for sterling, other foreign currencies or other cryptocurrencies.
The treatments outlined in this note are for tax purposes only. They do not reflect the regulatory or legal requirements resulting from any other legislation applicable in Jersey or elsewhere.
The Treasury and Resources Department will continue to review the tax treatment of activities involving cryptocurrencies and monitor the international position to determine appropriate policies.
Given the emerging nature of cryptocurrencies, further guidance on the tax treatment may be issued as appropriate.