In the course of a broad tax reform, Austria will also regulate the taxation of cryptocurrencies next year. The draft law remains largely conventional, but delights Austrian crypto fans with some remarkably friendly features.
With the “Ecosocial Tax Reform Act 2022”, Austria is planning a comprehensive reform of a basket of tax laws. The reform aims at several goals: It aims to relieve the burden on citizens and companies, make the country more competitive, reduce CO2 emissions – and also put the taxation of cryptocurrencies on a solid legal footing.
The changes to the laws are numerous, but here, of course, it will only be about the taxation of cryptocurrencies. And of course I can only interpret and comment on the legal texts from a layman’s perspective: Neither am I familiar with jurisprudence, nor with tax law, especially not with Austrian law. Therefore, everything I write here should be understood more as a conjecture, which is no substitute for one’s own study of the subject or consultation with an expert.
Conventional with a friendly twist
“Crypto” is obviously important to the legislator. In the 28-page draft, the word “cryptocurrencies” appears a whopping 56 times. As a rule, it appears rather unspectacularly, for example when it is simply inserted into the text to complete the relevant investment categories. These many classifications confirm above all what has been apparent here and there for a long time: Cryptocurrencies are now also formally arriving at the legislator as a financial instrument, and the government wants to secure a piece of the sugary cake in the form of tax revenues.
In detail, however, the draft introduces some peculiarities. In short, the planned rules are largely conventional, but have one or two crypto-friendly twists.
In principle, income from cryptocurrencies will henceforth be considered “income from capital assets” and accordingly taxed at rates of 25 or 27.5 percent. This capital income can arise from cryptocurrencies either through “realised capital gains”, but also through “current income from cryptocurrencies. “
Austria has changed its crypto tax guidelines, unfortunately, the tax exemption now drops after one year and is replaced with a capital gains tax of 27.5%.
However, cryptocurrency to cryptocurrency trading is now tax-free. So I assume I will never cash out so fast again 😀– Frostyz (@CryptoFrostyz) November 9, 2021
This is conventional as far as it goes and not much different from Germany. But there are a few small peculiarities.
Recurring income from cryptocurrencies
For one, the “current income from cryptocurrencies.” These mean, for example, the remuneration for lending cryptocurrencies – i.e. for example via centralised service providers such as Nexo or decentralised ones such as Compound – as well as what the following somewhat puzzling wording describes: “The acquisition of cryptocurrencies through a technical process in which transaction processing services are provided”.
One might think this means staking: the creation of new units of a cryptocurrency by using existing cryptocurrencies to qualify for the creation of new blocks. But this is explicitly excluded: “If the transaction processing service consists only of the use of existing cryptocurrencies” this does not constitute current income. The same applies if the cryptocurrencies are received through airdrops or as a bounty “for merely insignificant other services”.
This section is slightly confusing. Why would airdrops be “current income from cryptocurrencies” at all? And why bounties? Are there any plans to define mining as one as well?
Let’s leave it at this: staking and airdrops should be tax-exempt in Austria. At least for the time being. Because we come across it again when realising increases in value.
Taxes on capital gains – with one important exception
Here again, the law starts conventionally: an “income from realised appreciation” means the “difference between the proceeds of disposal and the cost of acquisition”. If you bought cryptocurrencies, the acquisition price is the purchase price, and if the sale price is above that, you have to pay tax on the difference as profit. Sure. We’ve had this so many times, it’s part of the little 1×1 of taxing crypto. The fact that the profit is capital income in Austria, while in Germany it is counted as income, is more of a detail.
But what if you didn’t buy the cryptocurrencies, but received them through staking, airdrops or bounties? Then the acquisition value is zero. As soon as you sell them, the full taxes become due: 25 or 27.5 percent on the complete amount.
The capital gains tax – let’s call it that – always applies when you sell cryptocurrencies, when you exchange them for services or other goods. So far so good and so conventional. The problem of creating a tax liability every time you pay something with Bitcoin is as universal – it exists in Germany, the US and soon in Austria – as it is unrealistic. Will the tax office be able to verify this? Will the individual be able to cope with the bureaucratic and documentary effort?
Unlike in Germany and other countries, however, this capital gains tax does not apply to another transaction: when one exchanges a cryptocurrency for another cryptocurrency
Austria want to promote crypto and build its legitimacy…probablynothing Bitcoin ether pic. twitter.com/9uEfta8rH4
– 690.eth For Sale On OpenSea (@690_Eth) November 9, 2021
Perhaps the legislation is responding to the almost endless complexity of accounting for the realisation of income from the exchange of crypto for crypto. In Germany, for every crypto trade you have to determine the acquisition value of one coin, calculate the value of the coins you acquire in euros, and then offset both against each other. Especially if you make a lot of trades with a lot of coins, this is almost impossible to handle bureaucratically – also and especially not for the tax authorities.
Perhaps the idea behind the exemption is that it is not in fact a realisation of profits when one cryptocurrency is exchanged for another, and should therefore not be treated as such. The value in which one realises the profit is itself unrealised and volatile. Under the wrong circumstances, one loads oneself with an enormous tax liability with a trade, which can be significantly higher than the profit if the price is right.
In any case, such a regulation would be a gift for crypto traders. One can cheerfully exchange Bitcoins for other coins and other coins for Bitcoin.
A huge gaping hole?
In itself, then, you should be spared taxes as long as you don’t leave the crypto space. This is an extremely positive turn of events, encouraging users to hold their cryptocurrencies rather than sell them.
This naturally leads to the question of whether stablecoins are also considered cryptocurrencies. “A cryptocurrency is,” the law explains, “a digital representation of value that is not issued or guaranteed by any central bank or public body and is not necessarily linked to a legally established currency and does not have the legal status of currency or money, but is accepted by natural or legal persons as a medium of exchange and can be transmitted, stored and traded electronically .”
Thus, the defining characteristics of a cryptocurrency are that it represents value, it is not issued by a central bank or other public body, it does not enjoy the legal status of a currency, but it is accepted as a medium of exchange and is managed electronically.
Austrian Crypto Tax Will Treat Tokens Like Stock.Recently, Austria announced that it wants to tax cryptocurrencies by taxing them like stock and bond investments. The country wants to apply a 27.5% capital gains levy on digital tokens from March 2022 as part of a wider tax pic.twitter.com/sacd15Qy7h
– cryptowithrehan (@cryptowithrehan) November 10, 2021
So seen, stablecoins (as long as they are not issued by a central bank like CBDCs) are likely to be cryptocurrencies. This opens a path to near-perfect tax exemption: earn through staking, exchange the proceeds for stablecoins, and then exchange those for euros. As long as the stablecoins are not considered to have been acquired for free, one should only pay minimal taxes, if any.
However, the courts will probably have to decide whether this really works. Even without such an interpretation, the legislation is remarkably crypto-friendly.
The law is due to come into force on 1 March 2022, but it will apply to all cryptocurrencies acquired after 28 February 2021, although the obligation to deduct capital gains tax on cryptocurrency income will only apply to income arising after 31 December 2022.
