The Austrian government recently presented the planned tax reform 2022. The published draft law includes far-reaching changes regarding the taxation of crypto assets. For the first time crypto assets will be defined by Austrian tax law and income derived from crypto assets will be included in capital assets. We have summarized the key points of the planned new taxation regime for crypto assets.
- Income derived from crypto assets
Basically there should be two types of income from crypto assets in the future:
- Ongoing income: Only interest payments from lending and crypto mining will fall under ongoing income.
- Income from realized capital gains: The main type of income from realized capital cains will be the trading of crypto assets to fiat money (e.g. EUR, USD) or other assets/services (e.g. paying bills without trading to fiat money). However converting crypto assets to crypto assets (e.g. Bitcoin to Ethereum; due to the definition of cryptocurrencies, stablecoins could also be included) does not result in a taxable realization. This is a paradigm shift as the existing taxation regime for trading of assets according to Austrian Income Tax Law does not apply to crypto assets.
Moreover the following crypto transactions are not recorded as ongoing income at the time of receiving the crypto-assets but in the course of the subsequent realisation as income from realized capital gains:
- staking (energy-efficient acquisition of crypto assets by making existing crypto assets available as collateral)
- airdrops (transfer of crypto assets free of charge [e.g. marketing considerations])
- bounties (transfer of crypto assets for insignificant consideration (e.g. in order to receive a bounty, advertising services from users are usually necessary [e.g. on social media platforms])
- Taxation of crypto assets
Taxation
Due to the inclusion in the income from capital assets, crypto assets will be taxed with the special tax rate of 27.5% in the future (taxation like mainstream stock and bond investments). However there is also an exemption from the special tax rate regime. Income from the provision of crypto assets (lending) will be taxed with the individual tax rate if the underlying contracts are not offered in public (as an equalization with private loans in kind).
In the case of income from realized capital gains, the capital gain is determined by deducting the acquisition costs from the proceeds of the sale. For this reason, the acquisition costs should be documented accordingly.
Loss offsetting
The existing provision on loss compensation for private assets is to be extended. If the special tax rate of 27,5% applies, losses can be offset against other capital income taxed at a special rate (e.g. capital gains from shares, dividends, interest from bonds). In the case of business assets, the treatment of a loss realization shall be analogous to other capital investments held for business purposes.
Capital gains tax deduction
In addition, it is envisaged that tax collection (and direct payment to the tax authorities) will be carried out at source by the domestic debtor or domestic service provider. Domestic service providers are considered to be service providers that offer services to secure private cryptographic keys in order to hold, store and transfer cryptocurrencies, as well as service providers that offer the exchange of cryptocurrencies into legally recognized means of payment and vice versa. If there is no withholding obligation by a domestic debtor or domestic service provider, the taxpayer must declare the relevant income in the annual income tax return.
If, in the case of income from realized capital gains, the actual acquisition costs are not known to the person obliged to deduct the capital gains tax, the following procedure shall be followed:
- The acquisition costs and the acquisition date are to be assessed on the basis of the information provided by the taxpayer, unless this information is obviously incorrect. There shall also be an authorization to issue a decree, which regulates further details (e.g. how the acquisition costs are to be determined if the acquisition date is known, taking into account average values; how the acquisition costs are to be recognized in the case of acquisitions of the same cryptocurrency in chronological succession; how the correctness of the information provided by the taxpayer is to be verified by the person obliged to deduct, whereby an increasing standard of care can also be provided for in the future).
- If the date of acquisition is not known or has not been indicated by the taxpayer or has not been indicated correctly, it shall be assumed that the acquisition took place after February 28, 2021. In the context of the subsequent realization, the person obliged to deduct must assume that the acquisition costs correspond to half of the proceeds from the sale.
Furthermore, since converting crypto assets to crypto assets does not result in a taxable realization, the published draft indicates that acquisition costs of the initial crypto assets are to be continued. Even though the initial purchase of the crypto assets is relevant, all further trades have to be conclusively documented. This will lead to an enormous workload for day traders. “Hodlers” will not be affected that much. Unless a crypto exchange provides sufficient documentation, the taxpayer should take care of it themselves.
- Transitional regulation
In the transitional regulation, on the one hand, the distinction between old and new assets is defined and, on the other hand, the date for the entry into force of the new taxation regime for crypto assets is standardized:
- Distinction between old and new assets: Crypto assets purchased prior to 1st March 2021 are considered as “old assets”. For those assets the old taxation rules apply. In case of holding those assets for more than one year (speculation period), there will be no taxation in the course of the realisation. If income is generated within the speculation period (e.g. trading to fiat money), taxation with the individual tax rate will apply. Crypto assets purchased after 28th February 2021 will be considered as “new assets” and taxed according to the new taxation regime, i.e. basically the special tax rate will apply.
- Effective Date: Based on draft law, the new regulation is to come into force on 1st March 2022. Therefor it has to be considered, if assets purchased between 1st March 2021 and 28th February 2022 are sold within this period, the taxation with the individual tax rate will apply (instead of the special tax rate of 27,5%).
Furthermore it has to be considered, the exchange of crypto assets may result in a change in the taxation regime. If old assets are exchanged tax-free for other crypto assets, the newly received crypto assets fall under the new taxation regime (i.e. a following capital gain will be taxed with the special tax rate).
- Outlook
The planned tax reform will lead to a paradigm shift in the taxation of crypto assets. In principle, this is an important step in the right direction, leading to more legal certainty. However, for Austrian crypto exchanges, the currently planned tax deduction obligation leads to a location disadvantage compared to foreign competitors.
The review period of the planned tax reform runs until December 6, 2021. For this reason, the final legal implementation remains to be seen.
Authors:
Christoph Puchner, Managing Partner and Tax Advisor & Mehmet Erdem, Tax Manager from ECOVIS Austria, one of the leading tax consultants in Austria in the startup sector.
