26 Jan Capital gains on bitcoin: always taxable?

The Belgian ruling commission recently had to decide on the tax treatment of capital gains on bitcoin (ruling no. 2017.852, 5 December 2017). In the case at hand, the ruling commission came to the conclusion that the gains did not constitute professional income. The commission, however, added that the person applying for the ruling had a speculative motive when investing in the bitcoins. As a result, any capital gain is taxable as a so-called miscellaneous income (art. 90, 1° BITC). One could see in this ruling the confirmation that, in the eyes of the ruling commission, capital gains on bitcoin are always taxable, either as professional income or as miscellaneous income. In our opinion, such conclusion it is simply a bridge too far. It remains necessary to review all facts and circumstances of the case and, as a result, it should still be possible to realize capital gains on shares that remain untaxed.

Automated sales and purchases with a self-developed app

In the case at hand, a student receiving training in IT had developed software to automate the process of purchasing and selling bitcoins. As a result thereof, he realized capital gains.

Through the ruling request, he wanted the ruling commission to confirm that the capital gains were taxable as a miscellaneous income (art. 90, 1° BITC) rather than professional income (art. 23 BITC).

In the concise ruling, the ruling commission comes to the conclusion that the capital gains do not constitute professional income since the student had developed the app “as a hobby and out of interest for his studies”. Moreover, the funds used to make the app were “rather limited and not organized”.

But so far the good news. Indeed, the ruling commission concludes with the observation that the gains are taxable as miscellaneous income “taken into account the speculative nature”. The ruling is silent on how that conclusion was reached.

Capital gains on bitcoin remain untaxed in certain cases

Capital gains on bitcoin can be taxable as either professional income (at progressive rates) or as miscellaneous income (at a 33% rate).

However, when the gains have been realized in a manner that corresponds with the normal management of a private estate, the gains remain untaxed. To conclude, purely based on the unregulated nature of bitcoin at the rather high volatility, that capital gains on bitcoin are always taxable, is, in our opinion unnuanced and incorrect. The (nature of the) investment itself (i.e. bitcoin) is, on a stand alone basis, not sufficient to conclude that the gains are taxable. One should also take into account the circumstances and motives surrounding the investment.

In our opinion, it remains required to look into the circumstances in which the capital gains on cryptocurrency have been made, in order to assess whether or not the gains are taxable and, if so, whether they are taxable as a professional income or a miscellaneous income. For example, have the bitcoins been obtained through mining or trading? Is the wallet protected or not?

The lawyers of Mythra have recently discussed this ruling in the tax newsletter Fiscale Actualiteit. The full article is available on www.monkey.be.

If you have further questions regarding the tax treatment of cryptocurrency, do not hesitate to contact us.