If you spend your days engaged in crypto activities, is this a taxable job?
This was the question in a court case in May in Gelderland. The tax office had claimed that someone who developed a trading bot for crypto currencies should be taxed under the higher rates of income (in box 1) for profits made.
The question was: when is what you are doing a taxable activity, liable for VAT and income tax, and when is it seen as a speculative investment to be taxed under wealth tax rates (box 3)?
In this case, the court ruled that the bot’s 124,004 transactions in almost three years were not a source of taxable income for the developer. Although the bot did very well in 2017, it made losses in 2018 – and its performance had nothing to do with the work put in but solely due to what was going on in the markets.
The case raises questions such as whether engaging in crypto mining would be considered a speculative activity or a source of ‘normal’ income.
A tax expert at Blue Umbrella said that crypto is an area being investigated by the Dutch tax office, especially after a year in which cryptocurrencies hit a huge peak and then tumbled in value.
‘If you are making some extra effort to get the crypto currency, it’s like digging gold,’ he explained. ‘The digging of the gold is then taxed as an activity and it’s not a capital gain any more. The discussion is whether crypto mining is box three, taxed as a capital gain, or box one, because you are actively searching for the crypto – which makes a difference.’
In the Gelderland court case, the judge referred to a letter from former finance minister Menno Snel from 2018 on the fiscal aspects of crypto currencies. In it, he laid down that if someone can reasonably expect a profit, it is more likely that work would be considered ‘income’ for box 1 purposes. If there is a speculative transaction that cannot be influenced by the level of work done, then it is not normal income-generating activity – and ‘this also applies to trading cryptocurrencies,’ he wrote. However, cryptocurrency, including bitcoin, should be declared as part of your wealth in the relevant tax year.
If you are deciding whether your crypto activity is a source of regular income, you need to consider if you are participating within the Dutch economic environment, if you are doing it to benefit yourself, and if you can objectively expect a profit. If so, it could be taxable as income.
In the Gelderland case, the court ruled that because the developer had both profits and losses, unrelated to the work in different tax years, the bot was not a box 1 income source.
The Dutch government is looking closely at crypto currencies.’ So, if you are unsure of your situation, take personal advice rather than face a big bill or court battle later!
For guidance on your tax circumstances, contact Blue Umbrella