All jurisdictions require Capital Gains and Income tax calculations to be first translated into their local currency. This is called Foreign Currency Translation or often referred to as FX Translation.
I am an Australian citizen and I trade on a foreign exchange (e.g., FTX US) that reports BTC and ETH prices in USD.
Australian Taxation Office law requires a taxpayer to convert all reported cost bases, sale proceeds and income calculations into my local AUD at the time of the transaction or average exchange rate.
As seen in the screenshot below, we have deposited AUD 1000 into FTX exchange and it has automatically converted into US dollars (USD 801.40). This would have been done using the currency exchange rate used by FTX at the time of the transaction:
We use this USD to purchase 1 ETH:
A few months later, we sell that ETH at the exact same price (in USD terms) as we had bought it for, however, the AUD value went up compared to the USD value. Therefore, there has been a capital gains (triggered by this currency fluctuation) of AUD 1275.91 - AUD 1000 = AUD 275.91
So, is this a taxable event?
Whether this gain caused by currency conversions is taxable or not is dependent on the guidelines within your tax jurisdiction. Various tax authorities have different guidelines for how to calculate the FX.
We’ve attached a few guidelines below so you can determine how you will treat this:
United States (IRS): https://www.irs.gov/individuals/international-taxpayers/foreign-currency-and-currency-exchange-rates
United Kingdom (HMRC): https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim39515
NOTE: if you decide to treat this as a non-taxable event, just make sure you have this toggle ‘on’ in the settings page:
What FX rate does Crypto Tax Calculator utilise?
Currently, Crypto Tax Calculator uses the following API data set to perform the translation from various currencies to the users selected local currency.
Foreign exchange reference rates
FX rates are Monday to Friday - if a trade occurs on Saturday or Sunday we use the last rate on the Friday.