Capitial Gains Question - Thought Experiment

[BitcoinArbiter]

Thank you for your answers.

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[bgibso01]

On Capital Gains – Thought Experiment


Hi Everyone. I have a question/scenario about capital gains/taxes. Ideally I’d like an answer from someone from Canada who is an expert in taxes/capital gains. But I’m sure answers for other jurisdictions would be beneficial for myself and other users, who could benefit from the scenario I am about to propose.

Scenario ONE:

Say one invests $10000 in Bitcoins at 250$ for a total of 40 Bitcoins on an Exchange, like QuadrigaCX.

Suddenly over the course of a couple months, the price of those 40 Bitcoins goes up by 600% (to 1500$)

The current value of the hoard would then be $60000

One then sells those 40BTC for $60000 CAN on the exchange

IMPORTANT QUESTION 1:
The account value on the exchange would then be 60000$ CAN. Would one now have to pay capital gains on that cash in the exchange account? OR does one only pay capital gains if one withdrew that cash from the exchange to their bank account? At what point is one required to pay capital gains?In the US, you would pay when you file your taxes because you have access to the cash whether you took it out or not.

A Continuation of the Scenario:
The price of BTC now goes down to 750$. IF one doesn’t have to pay capital gains on that cash sitting in the exchange account one could then buy back even more BTC at the new reduced price with the $60000 sitting in the exchange account for a total of 80 BTC. And so they do.See above.

IMPORTANT QUESTION 2:
With those 80 Bitcoins one could then buy physical gold on sites like apmex.com for BTC. Let’s say someone buys $30000/40BTC worth of gold from one of this dealer, and pays with BTC. That’s about 20 oz’s of gold (at 1500$ per oz). Would one then have to pay some form of tax on that purchase of gold with BTC?This is where it gets interesting.  Technically you should claim the gain because it becomes a barter transaction.  My guess is many do not, in which case your basis in the gold would be the basis you had in the btc.

A Continuation of the Scenario:
What happens when one cashes that gold in for physical cash at a we buy gold location? So let’s say I sell 10/20 of those oz’s of gold I bought with BTC for 1200$ (say the price of gold went down from 1500 to 1200) each, for a total of 12000 (a technical loss of 3000). Would I then have to pay tax on that cash in value of 12000. OR could I claim a loss of 3000$ on my investment (REALLY stretching it)?Again, it would depend on how you reported the purchase of gold.




Scenario TWO:
Say instead of cashing out their 40BTC for $60000 in the first instance in the above scenario one decides to just directly cash out their BTC (now at $1500 each) into physical gold. No cash in between, just a direct purchase of physical gold with BTC from the exchange account.Same as above.

IMPORTANT QUESTION:
Is there any tax associated with this purchase? What about when the gold is sold for cash? What would the capital gains tax be if 40BTC bought 40oz’s of gold directly, and then that gold was sold for $60000 cash?Same as above.


Thank you for reading through this scenario, I hope it’s straight forward. I’m interested in your perspectives on this.

[bgibso01]

Thank you for your response. I have a follow up question to this answer specifically the timing involved when filing taxes.

"In the US, you would pay when you file your taxes because you have access to the cash whether you took it out or not."

say the conversion from cash to BTC to cash to BTC all happens before you file your taxes, so at the time of filing your taxes you are holding BTC. Are you supposed to report this string of conversions even though you now don't have access to the cash, since it is now in BTC. During this string on transactions the assumption would be that you are profiting in between, so would their be Capitial gains tax still for each instance of profit?  Yes.  Even though you no longer have the money, you did have it and chose not to set aside for taxes.  US looks at if you had money, you owe

examples:
cash->BTC->cash (YES CAPITIAL GAINS TAX)
cash->BTC->cash->BTC (?.?.?)
cash->BTC->cash->BTC -> cash (Probably Capitial Gains, but on what, how?)


As for this answer:
This is where it gets interesting.  Technically you should claim the gain because it becomes a barter transaction.  My guess is many do not, in which case your basis in the gold would be the basis you had in the btc.

does anyone have first hand knowledge of those who "do not" or more information about the rules behind the "Technically you should" bit. Every transaction would be looked at separately, so every time there was a conversion there would be a tax consequence.

Thanks

[BillyBobZorton]

I still have no idea how one would properly estimate capital gains for Bitcoin. In my case, i've done thousands of small different trades... some in exchanges that are long gone forever so I lost the actual trade data... that not counting the fact I sometimes mixed coins. How in hell is one supposed to inform IRS or whatever and get it properly taxed? it's basically hell keeping track of it after a point.

[Amph]

I still have no idea how one would properly estimate capital gains for Bitcoin. In my case, i've done thousands of small different trades... some in exchanges that are long gone forever so I lost the actual trade data... that not counting the fact I sometimes mixed coins. How in hell is one supposed to inform IRS or whatever and get it properly taxed? it's basically hell keeping track of it after a point.

well it is your fault, i don't think that they care after all, they will tax you regardless, if you exceeded a certain amount, and you gained from your trade

the tracking before the birth of the rule for bitcoin by irs, should not be counted i think, but i'm not entirely sure about this


another note, what about if i send all my bitcoin abroad and i exchange them in a foreign exchange(after a gain on trading), then i transfer the funds in the usa, the taxes are the same? there are different rules?

[manselr]

I still have no idea how one would properly estimate capital gains for Bitcoin. In my case, i've done thousands of small different trades... some in exchanges that are long gone forever so I lost the actual trade data... that not counting the fact I sometimes mixed coins. How in hell is one supposed to inform IRS or whatever and get it properly taxed? it's basically hell keeping track of it after a point.

well it is your fault, i don't think that they care after all, they will tax you regardless, if you exceeded a certain amount, and you gained from your trade

the tracking before the birth of the rule for bitcoin by irs, should not be counted i think, but i'm not entirely sure about this


another note, what about if i send all my bitcoin abroad and i exchange them in a foreign exchange(after a gain on trading), then i transfer the funds in the usa, the taxes are the same? there are different rules?

They can have no idea how much BTC you have unless you tell them. How in hell can they even know? there's no way to know considering you are using mixers before paying (before linking a transaction with your personal credentials). Everything that isn't linked to your credetials is invisible to the clueless IRS.