How many of us wish we had invested some money in Bitcoin or any other digital currency at the beginning of this year.
With Bitcoin prices having quadrupled this year and other digital currencies not far behind, this incredible rise in value has created many rags to riches stories. The most recent being millionaire high schooler Erik Finman who invested in Bitcoin in 2011 when it was worth only USD$12 then.
The thousands who have made good money investing in digital currencies are now looking for ways to spend this new found wealth. And because Bitcoin is the gateway entry point for these other digital currencies and because Bitcoin has the widest adoption around the world, many of these gains are converted to Bitcoin to be spent.
Some investors are cashing out their gains into US dollars or their native country’s currency. However, in many jurisdictions, these gains are taxable under Capital Gains Tax laws. There is a strong incentive for these Bitcoin users to spend in Bitcoin say by booking a family holiday instead of cashing out and paying tax.
For example in Australia there is an exemption all local bitcoin holders should be aware of. “Where you use bitcoin to purchase goods or services for personal use or consumption, any capital gain or loss from disposal of the bitcoin will be disregarded (as a personal use asset) provided the cost of the bitcoin is $10,000 or less.” See the full ATO article on Tax treatment of digital currencies in Australia here.
In many countries taxes on such high capital gains can easily attract a tax rate of over 40% (depending on your income thresholds and gains) Many of these Bitcoin users are now realising it is better to use their Bitcoin gains in value to book a holiday somewhere nice rather than loose 40% through tax.