While gambling winnings and losses with traditional currency (fiat) are typically non-taxable, the situation becomes more complex when cryptocurrency is involved. This article explains the key tax considerations and provides practical examples to help you understand your obligations.
The Core Principle
When gambling with cryptocurrency, you must track and pay taxes on any gains or losses from changes in the cryptocurrency’s value when you dispose of it through gambling – even though the gambling gains themselves remain non-taxable. This creates additional administrative burden and compliance costs.
Why Choose Fiat Over Crypto for Gambling?
Given these complications, it may be more advantageous to gamble with fiat currency rather than cryptocurrency. This keeps your activities completely outside the tax net and eliminates preventable complexities associated with cryptocurrency disposals.
Understanding Through Examples
Let’s walk through a detailed example to illustrate how cryptocurrency gambling affects your tax position:
Initial Purchase
You start with $100 NZD and purchase 100 ABC Tokens. This initial purchase is not a taxable event.
Winning Scenario
You bet your 100 ABC tokens and win 200 ABC tokens when the token price has increased to $150 NZD:
You’ve made a $50 profit on disposing of your original ABC tokens (disposal price $150 – acquisition cost $100)
The 200 ABC tokens you received as winnings are considered a non-taxable windfall gain
However, the $50 profit from the token’s price increase is taxable income
Losing Scenario with Price Increase
If you then lose those 200 ABC tokens when the price has risen to $300 per token ($600 total):
You still have a taxable profit of $300 (sale value $600 – acquisition value $300)
The gambling loss itself is not tax-deductible
You must pay tax on the $300 profit despite losing the tokens
Losing Scenario with Price Decrease
Alternatively, if you lose the 200 ABC tokens when the price has fallen to $50 per token ($100 total):
You have a taxable loss of $200 (sale value $100 – acquisition value $300)
The gambling loss remains non-taxable
The $200 loss from the token’s price decrease is tax-deductible
Key Takeaway
Remember: While gambling outcomes remain non-taxable, you must track and pay taxes on any gains or losses from cryptocurrency value changes when you dispose of tokens through gambling. This creates a dual-track system where gambling results and cryptocurrency disposals are treated separately for tax purposes.
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Contact Us
Contact Tim Doyle for a call or meeting to discuss any cryptocurrency tax or accounting questions. Our office is in Cambridge, Waikato, or we can arrange a video conference call.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
