Is transferring crypto taxable?

Depending on how deep into the crypto space you are at this point in time, you may or may not already know the difference between hot storage and cold storage. If you don’t, you’re about to!

• “Hot” storage: A crypto wallet that is connected to the internet

• “Cold” storage: A crypto wallet that is not connected to the internet, this is typically in physical form

Some crypto users choose to transfer their assets between their hot and cold storage; whether for security reasons, or just plain old personal preference. If you’re someone who does this on the regular, you may be wondering, “will the tax authority see these transfers as a taxable event?”. Let’s dive into the answer below.

Are crypto transfers between addresses you hold ownership over taxable?

Australia:

In Australia, the ATO has clarified that “the moving of cryptocurrency will generally not be considered a transfer of ownership if you remain as the owner of that cryptocurrency”. This means that transferring crypto between wallets you own should not be a taxable event.

US:

In the United States, the IRS has stated that “if you transfer virtual currency from a wallet, address, or account belonging to you, to another wallet, address, or account that also belongs to you, then the transfer is a non-taxable event, even if you receive an information return from an exchange or platform as a result of the transfer”. This means that, like Australia, transferring crypto between wallets you own should not be seen as a taxable event.

UK:

In the United Kingdom, the HMRC states that “there is no disposal if the individual retains beneficial ownership of the tokens throughout the transaction.” As above, this means that transferring crypto between two addresses you hold ownership over should not be seen as a taxable event.

Note: If we haven’t touched on the guidelines in your region in this article, we’d recommend reaching out to a local tax professional to learn what the specific rules around transferring crypto are for you.

What about transfer fees?

Most region’s tax authorities are yet to release specific guidance on the tax treatment of transfer fees. This makes it difficult from an individual’s point of view to determine whether or not transfer fees could be considered a disposal event, and would potentially incur capital gains tax. There’s also a lack of understanding as to whether or not transfer fees could be considered tax deductible. Until your specific region releases guidelines on the tax treatment of transfer fees, we recommend talking to a local tax professional to determine what is best for your personal circumstances.

Australia:

The ATO has stated that “if your cryptocurrency holding reduces during this transfer to cover the network fee, the transaction fee is a disposal and has capital gain consequences”. This means you will have to take any and all transfer fees incurred into account when calculating your capital gains tax.

What about sending crypto from an address you own to an address you don’t own?

Australia:

In Australia, the ATO states that “disposing occurs when you either: exchange one cryptocurrency for another cryptocurrency, trade, sell or gift cryptocurrency, or convert cryptocurrency to a fiat currency”, all of which are considered transfers of beneficial ownership over the asset in question. This means you have to report any type of disposal of crypto asset for capital gains tax purposes.

US:

In the United States, “if you disposed of any virtual currency in 2021 that was held as a capital asset through a sale, exchange, or transfer” you will have to declare any capital gains or losses made on your 8949 form. This means that if you have disposed of your crypto asset, meaning you’ve sent it to a source you do not have beneficial ownership over, it will be considered a taxable event.

UK:

In the United Kingdom, sending tokens from an address you own to an address you don’t own is considered a transfer of beneficial ownership, and will consequently incur capital gains tax. The exception to this is unless the individual can show that the transfer was a gift to their spouse or civil partner.

Note: If we haven’t touched on the guidelines in your region in this article, we’d recommend reaching out to a local tax professional to learn what the specific rules around transferring crypto are for you.

How can Summ help?

In our platform, if there is a both a send and a receive (within a set of conditions), we automatically classify transfers between two addresses as a ‘transfer’. You can read more details about how Transfers work in Summ (formerly Crypto Tax Calculator) in the Transfer section of this help article.

In regards to transfer fees, usually the fee is attached to the actual fee-bearing transaction itself. You are able to manually add in a fee if required, but this would normally be accounted for by our algorithm.

As an example, a ‘Fee’ categorization can be used when you’ve been charged for withdrawing cryptocurrency from a centralised exchange to your personal wallet. Our algorithm treats fees as a capital gains tax event. You can read more on the implications of that here.

In a situation where you are unsure about the taxable implications of your crypto activity, we recommended to work with a local tax professional to determine what action is best for your personal circumstances.