Converting Crypto to Other Currencies for Tax Purposes

Intermediate

  • 04-Apr-2019

  • 5 M

How does currency conversion work?

Trading using fiat or crypto-fiat currency
If you trade with a fiat or equivalent currency then the process for calculating realisations is made easier. We don't have to take the first step of converting every realisation or fee to a fiat currency. If you nominate a local fiat currency on your trading account then we convert all realisations to that currency. Both values will be shown you your activity statement.

CHAINOMETRY stores daily exchange rates of all major currencies. When we convert the exchange's fiat currency (or equivalent) to your local nominated currency we do so by converting the buy price and sell price of the asset to your local fiat currency at the time of purchase and at the time of sale. This way we can get the most accurate realisation. Here's an example (all rates and prices are fictional):

BUY
1st April 2018: 0.5 BTCUSD @ Unit Price of $5,300 (total cost = $2,650)
SELL
1st June 2018: 0.5 BTCUSD @ Unit Price of $6,300 (total received = $3,150)

Your realisation for the trade is $500 USD

Let's say you nominate AUD as your local currency. On the 1st June, the exchange rate was 1 USD = $0.75 cents AUD. If we use this rate only to convert you profit then:

Realisation = $500 USD * (1 / 0.75)
Realisation = $666 AUD

Do It Better

This is a short-cut and doesn't reflect an accurate picture of what happened. CHAINOMETRY uses the following method to work out the realisation in your local currency:

  1. Convert the purchase unit price to the local currency at the date of purchase. The exchange rate on the 1st April was 1 USD = $0.70 AUD
    1st April 2018: Unit price = $5,300 USD * (1 / 0.70)
    1st April 2018: Unit price = $7,571 AUD
  2. Convert the sell unit price to the local currency at the date of sale. The exchange rate on the 1st June was 1 USD = $0.75 AUD
    1st June 2018: Unit price = $6,300 USD * (1 / 0.75)
    1st June 2018: Unit price = $8,400 AUD
  3. Calculate the realisation
    1st April 2018: Total Cost ($7,571 * 0.5) $3,785 AUD
    1st June 2018: Total Received = ($8,400 * 0.5) $4,200 AUD

    Actual Realisation = $415 AUD

There's a significant difference between the two methods of calculation; in the above example, a difference of $251 AUD of extra income you would declare that you didn't actually receive.

Trading using crypto-currency as the currency (coin-to-coin)

Things get much more complicated when you trade using coin as the currency. Each purchase unit price and each sale unit price must undergo the same treatment above except we need to be more specific when it comes to price lookups. With fiat currencies the daily rate is enough to get a fairly accurate exchange rate. Crypto-currencies, however, are more volatile and price swings of 5%, 10% even 20% can happen in a short amount of time (sometimes minutes).

For this reason CHAINOMETRY uses minute to minute data when getting prices for buy's and sell's. This means we keep millions of records of history for the major exchanges so that we can accurately assess you realisations. It's also the reason we can use the above currency conversion method above to give you data in a fiat (or fiat equivalent) currency.

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