The Yomiuri ShimbunThe national tax authorities are gathering information on investors and others who have made large profits from trading cryptocurrency.
Profits from such transactions are considered “miscellaneous income” (see below) and must be declared when more than ¥200,000 is made in a year. In 2017, a total of 331 people declared ¥100 million or more in miscellaneous income that included cryptocurrency trades. The authorities are creating a database of trades made by investors and others, which they intend to use in investigations if they find undeclared earnings or other suspicious activity.
“I consulted with my tax accountant but even so, calculating my income took a lot of time,” said a 42-year old man who runs a software company in Tokyo.
The values of cryptocurrencies have surged recently, with the value of bitcoin, the best known, rising about 20-fold in 2017.
The man said he purchased several types of cryptocurrency through an exchange, which netted him profits of as much as ¥30 million in July and August.
Cryptocurrencies are taxed in various cases, including when they are:
■ Exchanged for yen
■ Used to purchase goods and services
■ Traded for other types of cryptocurrencies.
The man thought that exchanging one type of cryptocurrency for another was untaxed, so he failed to record dozens of such transactions. He once forgot to declare profits from retail foreign exchange trading and had to pay a punitive additional tax of several million yen after a tax audit.
He said he was warned by his tax accountant that inaccurately declaring cryptocurrency profits could result in a punitive tax, so he checked his trading records with the exchange, and declared his 2017 income in February based on the records at the exchange.
According to the National Tax Agency, the number of people declaring at least ¥100 million in miscellaneous income, excluding public pension payments, on their 2017 tax returns was up significantly from 2016, increasing from 238 people to 549. Of these, the tax returns of 331 people mentioned cryptocurrency trading.
As of the end of March, there were 268 accounts on exchanges holding at least ¥100 million each, according to the Tokyo-based Japan Cryptocurrency Business Association. However, this figure does not include accounts at bitFlyer, Inc., one of the largest exchanges in the country. Therefore, one industry source said, “There are probably a lot of people who didn’t declare” their cryptocurrency income.
Concerned about undeclared profits from cryptocurrency sales, the tax authorities in 2017 began asking exchanges to provide data on transaction records. Some have cooperated. Teams specializing in e-commerce at the Tokyo and Osaka tax bureaus are using this to create databases to track users’ trades, holdings and other activity.
This information is then checked against income for 2017 declared in the tax return period from February to March this year. Inconsistencies trigger a tax audit, and if malicious intent is suspected, such as a large amount of undeclared or unreported income, the authorities may carry out a compulsory inspection.
Traders mainly young
The total amount of five major cryptocurrencies traded at domestic exchanges increased about 20-fold from the previous fiscal year to about ¥69 trillion in fiscal 2017, according to the association. There were about 3.5 million users as of the end of March, about 90 percent of whom were in their 20s to 40s.
After having a large amount of the cryptocurrency NEM stolen from its exchange, Coincheck Inc. compensated about 260,000 users a total of about ¥46 billion after converting the NEM into yen. The tax agency sees this compensation as miscellaneous income and has said it will be taxed if its value exceeds that of the original NEM purchase.
“Large profits from sales could lead to a major tax bill the following year. People need to make sure they have enough money to pay their taxes. Exchanges may close, so it’s important to keep transaction records on hand,” said Yasuhiko Sugiyama, a tax accountant who deals with cryptocurrency tax consultations.
■ Miscellaneous income
This does not include income from salaries, real estate rent and stock dividend earnings. It does include income from things such as public pension payments, royalties and lecture fees. It is combined with one’s salary and other income to determine one’s income tax rate. Speech