How to record your Ocean Protocol trades for Taxation purposes

Since I commenced investing in Cryptocurrency several years ago I have seen numerous people declaring their crypto trades incorrectly with some not declaring them at all which is just asking for trouble in the future with the increasing KYC requirements by leading global exchanges.

The information in this article relates to Australia and how Cryptocurrency is treated with regards to taxation. In Australia the Australian Taxation Office treats Cryptocurrency as Capital Gains Tax, one could assume that for other regions if your country also treats Cryptocurrency as Capital Gains Tax you could also follow these principles to calculate if you have had a CGT profit or loss, its then up to your countries legislation as to how your profit or loss is then treated.

Please note that I am not a licensed accountant or financial advisor, the following information is from what I have learned from investing in cryptocurrency for a few years and managing several Self Managed Super Funds that all had to be audited by a SMSF tax auditor and then be processed by the Australian Taxation Office.

Can I receive the 50% reduction in CGT if I have made a profit for the financial year ?

It should be noted that with regards to Capital Gains Tax if you hold the asset for longer than 12 months you will receive a 50% reduction in CGT owed, assuming you have made a profit. This means if you were to buy 100,000 Ocean Protocol tokens and not sell them for 12 months or longer you would get the 50% CGT reduction at your marginal tax rate assuming ofcourse you sold them at a profit.

What happens if I have a Capital Gains Loss in a financial year ?

The Australian Taxation Office will not reward anyone with a refund if they have a CGT loss in a financial year, instead that loss is carried forward to a future financial year where you have had a CGT profit.

Lets say in 2018/2019 financial year you had a CGT loss of $25,000 but then in the 2019/2020 financial year you had a CGT profit of $50,000 you will only pay CGT at your marginal tax rate on $25,000.

A very important point that people need to know is that in each financial year where you have traded cryptocurrency you are required to submit details in your annual tax return whether you have had a CGT loss or profit, eg you do not just wait until you have had a CGT profit and then deduct the previous years CGT loss, the loss needs to be recorded in the year it occurred. If you do your tax return yourself there is obviously a section with regards to CGT where you input whether you have had a profit or loss.

Is it difficult to record my cryptocurrency trades ?

Once you know the correct procedure in how to record your crypto trades it is fairly straight forward.

What makes things a bit more complicated is having to record also crypto to crypto trades and not just fiat to crypto or crypto to fiat trades, eg say you buy some Bitcoin to buy Ocean Protocol tokens, not only do you need to record the Ocean Protocol trades but also what you paid or acquired the Bitcoin for and what you sold or disposed it for.

Unfortunately this can be very time consuming if one is performing trades regularly, also I would never rely on a software program to calculate figures as most I know of still require you to enter some information and assume you have traded a particular way in some circumstances. However, many people do use these software programs without issue and the previous statement is just my own opinion.

The procedure for recording your cryptocurrency trades

The following information is going to assume I have acquired some Bitcoin from selling some Quant tokens and then used that Bitcoin along with other Bitcoin I already held to purchase Ocean Protocol Tokens.

Note that you would also need to be keeping records of your Quant trades but they will not be recorded in this example, neither will the Bitcoin that was already held.

Below is the procedure I use

Print out your trading history from when you sold your Quant tokens for Bitcoin.

Print out you trading history from when you purchased the Ocean Protocol tokens.

One then needs to create a spreedsheet when Bitcoin was acquired from selling the Quant tokens and disposed of when the Ocean Protocol tokens were purchased.

See below Bittrex trading history & spreedsheet for Bitcoin transactions

Bitcoin acquired from selling Quant

Bitcoin disposed of when bought Ocean Protocol

Bitcoin Trading History

From the above spreedsheet we then need to input four pieces of data into another spreedsheet to calculate if there has been a CGT profit or loss.

1, Total tokens purchased

2, Total amount in AUD spent

3, Total tokens sold

4, Total amount in AUD sold

See below the spreedsheet to calculate CGT profit or loss for Bitcoin

Bitcoin CGT Calculations

Obviously the above Bitcoin spreedsheets could not be filled out until we had figures to enter after purchasing the Ocean Protocol tokens.

See below Bittrex trading history and spreedsheet for Ocean Protocol transactions

Purchase of Ocean Protocol tokens

Sale of Ocean Protocol tokens

Ocean Protocol trades

From the above spreedsheet we then need to input four pieces of data into another spreedsheet to calculate if there has been a CGT profit or loss.

1, Total tokens purchased

2, Total amount in AUD spent

3, Total tokens sold

4, Total amount in AUD sold

See below the spreedsheet to calculate CGT profit or loss for Ocean Protocol

Ocean Protocol CGT calculations

Once we have the above spreedsheets completed with relevant information we can then determine if we have had an overall CGT profit or loss by entering information onto a 3rd spreedsheet.

We also need to get a BTC/AUD conversion for 18/12/2019, see below

BTC/AUD conversion for 18/12/2019

See below the spreedsheet to calculate if one has had an overall CGT profit or loss

Overall CGT profit or loss

Conclusion

From the above spreedsheet you will see I have added CGT profits for Morpheus Network, VIDT and NEO, this is for illustration purposes only and assumes these tokens obviously had a CGT profit of $2,000 each.

You will see the CGT profit for Bitcoin of $0.01 has been added at the top of the spreedsheet where other tokens had a CGT profit.

We then just need to deduct all the tokens that had a CGT loss from the tokens that had a CGT profit, see where the Ocean Protocol CGT loss of $0.49 has been input.

This leaves us with an overall CGT profit of $5,999.52 for the financial year.

For further information or if you are interested in investing into crypto via a SMSF anyone is welcome to join a telegram group I have set up as I had numerous people asking me about crypto and taxes, see link below.