BLOG

Japan’s National Tax Agency has released a document that computes the income from cryptocurrency earned for those filing their Final Income Tax Returns.

This is an unofficial translation and reference material designed to help you understand the how the computation of income from cryptocurrency works in Japan; thus, no liability is accepted. To ensure the accuracy, reliability, or current validity of the contents of this translation, please consult the original Japanese texts of laws and regulations. The document that has been translated this post can be found here.

Income that results from the sale and use of cryptocurrency such as Bitcoin should be declared, in principle, as Miscellaneous Income in the Final Income Tax Return ― unless it falls under Business Income.

The following document is a compilation of frequently asked questions regarding profit and loss of cryptocurrency and basic computations, etc.

Notes:

  1. All information in the document is based on existing laws and ordinances as of December 1, 2017. The transactions and amounts in the document are fictional and are based on observed amounts in general transactions with cryptocurrency.
  2. Those who have salaries (including computations following the year-end adjustment), have transactions in cryptocurrency that totals to below ¥200,000, and do not acquire any more cryptocurrency beyond that amount, are no longer required to declare the cryptocurrency in their Final Income Tax Return.

For reference on when the Final Income Tax Return is necessary, please refer to this link.


Covered Topics

  1. Selling cryptocurrency
  2. Purchases made with cryptocurrency
  3. Exchange between different cryptocurrencies
  4. Acquisition cost of cryptocurrency
  5. Forking
  6. Income classification
  7. Losses
  8. Margin trading with cryptocurrency
  9. Mining

Selling Cryptocurrency

Question:

How do we calculate income earned from selling currency (into Japanese yen)?

Example:

transaction date transaction details
March 9 purchased 4 Bitcoins (BTC) at ¥2,000,000 (commission fee included)
May 20 sold 0.2 at BTC ¥110,000 (commission fee included)

Answer:

In selling cryptocurrency (converted into Japanese yen), the difference between the acquisition price and the sale price of the cryptocurrency is the income earned.

In the example provided above, the income will be ¥10,000. Computation is follows:

computation for example 1

 

 

 

 


Purchases Made with Cryptocurrency

Question:

How do we calculate income from purchases settled in cryptocurrency?

Example:

transaction date transaction details
March 9 purchased 4 Bitcoins (BTC) at ¥2,000,000 (commission fee included)
September 28 purchased goods worth ¥155,000 for 0.3 BTC (commission fee included)

Answer:

In using cryptocurrency to purchase goods, the difference between the sale price of the goods and the equivalent amount of the cryptocurrency (computed using the acquisition cost of the cryptocurrency) used is the income earned.

In the example provided above, the income will be ¥5,000. Computation is follows:

computation for example 2

 

 

 


Exchange of Cryptocurrency

Question:

How do we calculate income from purchasing another kind of cryptocurrency with cryptocurrency?

Example:

transaction date transaction details
March 9 purchased 4 Bitcoins (BTC) at ¥2,000,000 (commission fee included)
November 2 purchased another kind of cryptocurrency (market price is ¥600,000) for 1 BTC (commission fee included)

Answer:

In using cryptocurrency to purchase another kind of cryptocurrency, the difference between the market price of the purchased currency and the equivalent amount of the cryptocurrency (computed using the acquisition cost of the cryptocurrency) used is the income earned.

In the example provided above, the income will be ¥100,000. Computation is follows:

computation for example 3

 


Acquisition Cost of Cryptocurrency

Question:

How do we calculate the [total] acquisition cost of cryptocurrency that went through various transactions?

Example:

transaction date transaction details
March 9 purchased 4 Bitcoins (BTC) at ¥2,000,000 (commission fee included)
May 20 sold 0.2 BTC ¥110,000 (commission fee included)
September 28 purchased goods worth ¥155,000 for 0.3 BTC (commission fee included)
November 2 purchased another kind of cryptocurrency (market price is ¥600,000) for 1 BTC (commission fee included)
November 30 purchased 2 Bitcoins (BTC) for ¥1,600,000 (commission fee included)

Answer:

It is best to use the moving average cost method to compute the total average when dealing with more than two purchases of the same cryptocurrency. (However, due to the continuous use of the currency, the weighted-average method may also be used.)

(1) Using the moving average cost method to calculate the acquisition cost of 1 BTC

In the example provided in the question, using the moving average cost method, the equivalent amount of 1 BTC in Japanese yen is ¥500,000 as of March 9. As of November 30, its equivalent will be ¥633,334. Computation is as follows:

computation for example 4

(2) Using the weighted-average method to calculate the acquisition cost of 1 BTC

In the example provided in the question, using the total average method, the equivalent amount of 1 BTC in Japanese yen is ¥600,000. Computation is as follows:

computation for example 4-2

 


Forking

Question:

Will we include in the final tax return any new cryptocurrency we acquired due to forking?

Answer:

Normally, under the Income Tax Law, we need to include any economically valuable items based on the calculated income amount based on the market price at the time of acquisition.

However, since no actual transaction occurs during forking of cryptocurrency, and the resulting cryptocurrency is new, there is no existing market price to base the acquisition cost on.

For the new cryptocurrency, there is no income earned upon acquisition.

For unused cryptocurrency resulting from forking, its acquisition cost will then be ¥0.


Income Classification

Question:

Are there cases where income from using cryptocurrency can be put under a different income classification (not miscellaneous income as indicated in your tax answer)?

Answer:

Excluding usage of cryptocurrency such as Bitcoin in business-related transactions, it is classified under “Miscellaneous Income”. However, if it used for business transactions, it will be considered under “Business Income”. For example, for those who earn business income, who keeps virtual currencies as an asset, and uses it as a means of settlement, then its usage, including the profit and loss that results from it, is considered income incidental to the person – in that sense, it will fall under “Business Income”.

For reference on the tax answer referred to in the question, please see this link.

 


Treatment of Losses

Question:

Losses were incurred with our transactions using cryptocurrency. Is that still included in the declaration together with other income such as salary?

Answer:

No. It should not be declared elsewhere besides “Miscellaneous Income”.

As stipulated in the Income Tax Law, the only sources of income that can be totaled together with other income are real estate, business income, capital gains, and forestry. For miscellaneous income, it does not fall under these forms of income, so even if there are losses incurred, it should not be summed up with other income.

 


Margin Trading with Cryptocurrency

Question:

For margin trading in cryptocurrency, will it be subject to self-assessed separate taxation, similar to margin trading foreign exchange?

Answer:

Self-assessed separate taxation does not apply to margin trading in cryptocurrency. It should be declared under general taxation.


Mining

Question:

How do we calculate the acquisition cost of cryptocurrency obtained through mining?

Answer:

For cryptocurrency obtained through “mining”, it can fall under either miscellaneous income or business income.

To compute for the value of mined cryptocurrency, subtract the cost of the mining process from the market price of the cryptocurrency at the time it was mined.

When selling mined currency or using the mined currency for purchasing goods, use the acquisition cost of the mined currency during the time it was mined.

 


The translation of the document ends here.

Again, this is an unofficial translation and reference material designed to help you understand the how the computation of income from cryptocurrency works in Japan; thus, no liability is accepted. To ensure the accuracy, reliability, or current validity of the contents of this translation, please consult the original Japanese texts of laws and regulations. The document that has been translated this post can be found here. ')}

Bitnami