The new ‘Swap’ category has been a highly anticipated feature for many users. With the innovations of DeFi, there are some cases where users may wish to account for a non-taxable transaction where one asset is traded for another.
Some scenarios where users could possibly find such a category applicable include:
A token has migrated to a new contract
A token has changed its ticker name
A token has been ‘wrapped’ or ‘unwrapped’
A token has been deposited into a DeFi protocol and a ‘Receipt Token’ has been issued
IMPORTANT: Please note that the concept of a non-taxable ‘Swap’ may not be relevant in your tax jurisdiction, and it is extremely important to discuss the use of this category with a tax professional. The above scenarios may not be considered non-taxable events in your situation or jurisdiction.
How does the ‘Swap’ category work?
The ‘Swap’ category works by assigning the cost basis and purchase date of the original asset to the new one. For example, If you purchased 1 BTC on the 1st January 2022 for $45,000 then this asset would be assigned that cost basis and the holding period would start on the date of purchase.
If you were to then ‘wrap’ the BTC into WBTC on the 1st April 2022 then the CryptoTaxCalculator platform would automatically treat this as a taxable ‘trade’ transaction. If the current market price of BTC was higher than $45,000 at the time it was ‘wrapped’, you would incur a capital gain or vice versa if it was below this price. If your tax jurisdiction and personal situation allowed for a non-taxable transaction in this scenario, you could recategorize this transaction on the platform as a ‘Swap’.
The ‘Swap’ category will then reassign the cost basis and holding period from the original asset (BTC), to the new asset (WBTC). This is implemented by altering the original purchase so that it is as if WBTC was purchased on the 1st January 2022, rather than BTC.
Currently, users on HMRC and ACB cannot use swaps due to complexities with specific tax rulings.
Currently, UK or CA users that use swaps on a non-country-specific inventory method (e.g., First In First Out) cannot switch back to a country-specific inventory method (e.g., HMRC or ACB), without first recategorizing all ‘swaps’ as ‘trades’.
How to Apply a Swap to a Trade
If you decide that you have a ‘Trade’ uploaded to the platform that you would like to categorize as a non-taxable swap, then you can do the following to recategorize it. Remember to discuss the use of this category with a tax professional before making any changes to your transactions.
Find the trade you want to recategorize:
This is an example only, and a ‘Swap’ may not be a recognized function for this transaction type/scenario in your tax jurisdiction.
Select ‘Trade’ and then choose ‘Swap’:
Allow for the transactions and reports to update. You have now changed the ‘Trade’ to a non-taxable ‘Swap’.