Trading crypto on behalf of friends or family? Gifting crypto to others? In this article, we’ll take a look at the tax implications of gifting cryptocurrency or buying crypto for someone else.
Cryptocurrency traders, enthusiasts, and investors all share a common passion: a positive stance on the future of cryptocurrency and an enthusiasm for sharing the benefits of crypto with others. For this reason, many crypto holders choose to buy and send cryptocurrency to friends and family as a gift, birthday present, or simply to encourage adoption.
Gifting cryptocurrency may provide new crypto users with a stepping stone into the crypto world, or function as a gift that could dramatically rise in value, but it can also be a taxable event. In this article, we’ll take a look at the tax implications of gifting cryptocurrency or buying it for a third party.
Buying Crypto for family & friends
Purchasing cryptocurrency can sometimes be confusing for new cryptocurrency investors. New investors, or individuals with a cursory interest in cryptocurrency, will often request more informed crypto users to purchase cryptocurrency on their behalf.
While purchasing cryptocurrency for others may help them get into crypto, it’s important to politely decline if you are asked to do so. If a trader purchases crypto from a legitimate exchange on behalf of a third party, it’s highly likely that the trader themselves will be liable to pay any capital gains on the cryptocurrency purchased.
For this reason, it’s advisable to educate friends and family on how to legitimately purchase cryptocurrency themselves, rather than do it for them. Should you purchase cryptocurrency for a third party and hold it on their behalf, it’s possible that the cryptocurrency holdings may dramatically increase in value.
In these circumstances, it’s likely that the individual for which you are holding cryptocurrency may wish to “cash out” and will expect to be remitted the full market value of the cryptocurrency in question. It’s possible that the individual may not understand or not want to consider the implications of a potential 45 percent capital gains tax, leaving the original purchaser to foot the tax bill.
Selling cryptocurrency on behalf of another individual may also affect a wide range of other factors, including government benefits, child support payments and taxable income.
Tax complications may place unwanted stress on familial relationships or friendships and could even result in unwanted litigation — it’s best to never purchase or hold cryptocurrency for a third party.
How is the crypto traced back to me?
If you opened the exchange account under your own name, then all of the crypto trades are said to associate with the entity who owns the account. It is then wise to review the “paper trail” to ensure all trades are done under the right exchange account.
Where other parties need assistance, it is likely to be fairer on your tax situation to simply help open their exchange account under their own name and have them trade under their account.
Gifting Cryptocurrency & Tax
If you choose to give cryptocurrency as a gift, or for a special occasion, it’s important to keep accurate records. When purchasing cryptocurrency as a gift, it’s important to ensure you provide a copy of both the transaction hash on the blockchain and a copy of the transcript of the event to the individual to which the cryptocurrency is being gifted. These records should also be kept by the purchaser.
Keeping these records allows for the backdating of the purchase. The gifting of cryptocurrency should be declared as a CGT A1 Disposal Event on the tax return of the purchaser for that financial year (providing they are an investor). If you are trader then this will still be recognized as a sale for trading purposes.
If you are sharing crypto with others, then it’s important to understand where you are placed for tax purposes. For straightforward & quick turnaround on crypto tax returns, please reach out to our crypto tax advisors today.