Bill exempting low-value crypto transactions from capital gains returns to Congress
A draft bill called the “The Virtual Currency Tax Fairness Act of 2020” has been reintroduced to the US Congress by Representatives Suzan DelBene (D-WA) and David Schweikert (R-AZ). The draft bill, which was first introduced in 2017, seeks to amend the Internal Revenue Code of 1986 to carve out a capital gains tax exemption for virtual currency expenditure under a personal transaction value threshold.
The intent of the draft bill is to lower the reporting burden for taxpayers who may have unknowingly realised a capital gain. Currently, any capital gain or loss from a cryptoasset transaction in the US is a taxable event, which must be reported to the IRS at tax time. The draft bill proposes to exempt reporting of any capital gain less than $200, down from the threshold of $600 proposed by the 2017 draft bill.
The draft bill includes the following definition of "Virtual Currency":
VIRTUAL CURRENCY.—For purposes of this section, the term ‘virtual currency’ means a digital representation of value that is used as a medium of exchange and is not otherwise currency under section 988.’
Unfortunately, it is unclear whether the updated draft bill will gain any traction. The 2017 draft, after being referred to the House Committee on Ways and Means, appears to have simply stalled and never progressed.
However, any step (however incremental) toward sensible tax treatment of cryptoassets is laudable. While Australia's tax regime is far from perfect, we already benefit from a similar exemption to the one proposed by the draft bill in the form of the personal use exemption. The Australian Tax Office has already specifically considered how the personal use exemption can apply to cryptoassets, and specifically Bitcoin, in Taxation Determination 2014/26, which provided that where the first element of the cost base of a token is A$10,000 or less and the token qualifies as a personal use asset, the gain may be disregarded under the personal use exemption.
Personal use assets are defined broadly (but often interpreted narrowly) to include assets used or kept mainly for personal use or enjoyment.
The draft bill follows the IRS's October 2019 guidance on applying tax laws to hard forks and airdrops, which expanded on previous guidance issued in Notice 2014-21.