The taxpayer collected a pot of almost 140 million euros from cryptocurrencies
The values of cryptocurrencies were at a record high last year, which is reflected in tax revenue. Finns reported cryptocurrencies worth more than EUR 2.1 billion to the tax authorities last year.
Tax revenues from transactions in cryptocurrencies rose to record levels last year. The taxpayer collected less than EUR 140 million in tax revenue from cryptocurrencies made last year.
According to figures reported to the tax authorities, Finns sold cryptocurrencies for more than EUR 2.14 billion last year. In 2020, the corresponding amount was EUR 190 million.
The prices of cryptocurrencies multiplied last year, which is also reflected in the taxpayer figures.
Finns made a profit of almost EUR 460 million in the emerging markets, which is almost 15 times more than a year earlier. Of this amount, the taxpayer charges capital duty, or 30 percent.
Similar gains may not be promised this year. The prices of cryptocurrencies started to fall sharply after mid-November and currently, the price of many crypts is less than half of last year’s highs.
The number of notifications is growing
Last year, more than 12,700 people reported their cryptographic income to the taxpayer, which is more than three times as many as the previous year.
However, the tax administration believes that a significant proportion of cryptocurrencies remain unreported. In the past, the tax administration has estimated that the actual number of taxable persons is as high as 150,000.
- It appears that, in particular, those who have suffered a loss from their activities do not declare their supplies for tax purposes. In itself, even loss-making disposals should be reported, as losses can be deducted from capital gains and other capital gains in the tax year and the next five years, says Chief Inspector Timo Puiro from the Tax Administration.
Last year, cryptocurrencies of almost EUR 5.7 million were reported to the taxpayer. This is twice as many as a year earlier.
Mining is also taxable income
In addition to trading in cryptocurrencies, the taxpayer must be notified of the proceeds from the mining of crypts. Mining is a method in which the user participates in securing a blockchain that maintains cryptocurrency. For this activity, he will be rewarded with that cryptocurrency.
Different blockchains handle verification differently, but the most common methods are proof-of-work and proof-of-stake.
The world's first cryptocurrency, Bitcoin, operates through a certificate of the employment process, in which the blockchain is verified using complex calculations. In this method, the excavator provides computing power to solve the computation and verify the blockchain.
The income obtained by this method is considered by the taxpayer as earned income.
In the participation certificate, the user joins the blockchain as a shareholder by locking the cryptocurrency he owns to the use of the network. In this model, the verification of the blockchain is done by the shareholders.
Of the cryptocurrencies, Solana and Cardano, among others, use this method. The world’s second-largest cryptocurrency, Ethereum, is also moving to this model.
Income received with a unit certificate is considered by the taxpayer as capital income.
- For tax purposes, it is considered that this is income directly based on existing assets, ie the virtual currency previously owned, in which case the value of the additional virtual currency is taxed as capital income, Puiro says.
Mining costs can be deducted from taxation
About 1,400 people reported the excavation last year to the tax authorities. The net income they reported was about 2.3 million euros. In 2020, approximately 240 people reported mining and their net income was approximately EUR 340,000.
In general, the taxpayer interprets mining as a hobby. In many cases, the miner also receives, for example, wage income.
According to the Tax Act, expenses incurred for hobby activities can be deducted from the income received from the activities. Certificate of Excavation requires powerful processors that consume a lot of electricity. Both the purchase price of the equipment and the consumption of electricity can be deducted from taxation.
As a rule, deductions for mining from last year were reported to the taxpayer at EUR 2.8 million.
- Expenses for hobby activities may only be reduced up to the amount of income. As a result, the actual costs for the year may be higher than the revenue, in which case this EUR 2.8 million may even be too small compared to the actual costs incurred, Puiro says.
The price of electricity, which started to rise towards the end of the year, and at the same time the cryptocurrency market, which has started to decline, has made the mining of crypto an expensive hobby. However, Puiro points out that expenses not deducted from hobby activities in the tax year can be deducted from the extraction income accruing in the following years.0