It seems the guides on Koinly are incorrect. Gas is a cost as shown here on HMRC website:
" What counts as an allowable cost
You can deduct certain allowable costs when working out your gain, including the cost of:
I am not sure what guides on Koinly you are referring to when you say they are incorrect. You need to be specific as context matters.
Koinly’s updated Crypto Tax UK: Ultimate Guide 2022 is the guide that I am looking at. It has a section dealing with the calculation of capital gains taxes on the sale or disposition of ETH or other crypto. It provides that transaction fees, e.g. gas fees, are an allowable cost that can be added to your cost base in calculating your capital gains. The Koinly software generally does this automatically whenever you sell or otherwise dispose of crypto. See excerpt pasted below.
How to calculate CGT on cryptocurrency UK
To calculate tax on crypto gains, you need to start by figuring out your cost basis.
Your cost basis is how much it cost you to buy your crypto, plus any transaction fees.
It is important to understand that the Cost label which Koinly uses to tag certain types of expenses is not relevant to the calculation of capital gains taxes. It is used to tag expenses that are deductible from Income for income tax purposes, e.g… where you are using crypto in carrying on a business and are subject to income tax on your net income after deducting allowable expenses.
If you point to a specific section of one or more of the Koinly Guides where you have a concern, this might help in providing a more contextual response.
You are correct ETH gas fees are an allowable cost for UK residents under the HMRC guidance. I’ve submitted several bug reports and new feature requests to Koinly but they have done nothing to fix the issue so far!
When you move a token on the ETH block chain you can’t tag the gas fee within the transaction. The gas fee is a separate transaction but all you can do is tag it as a cost but koinly does not offset costs against capital gains!
I raised this issue before and the simple solution would be for kioinly to create a new tag “Transfer Fee” and then give us an extra option in settings to offset transfer fees against capital gains. (Allowable under uk guidance)
In the meantime as Koinly can’t be bothered to implement this I manually edit their full tax report before I attach it to my tax return, Basically I place a big comment against the expense section that costs are an allowable expense referencing the section of the HMRC guidance on transfer fees and then edit the figures on the first page of the report by the amount of expenses (I also place a big comment on this page explaining the amount I’ve changed values by and reference them to the expenses section of the report.
It’s a shame Koinly can’t be bothered to add this feature for UK users but I’m realistic that maybe there aren’t enough UK users to make it worth there while.
Adrian
Is it me or does it also seem to remove the transaction fee from the cost basis shown? Any gains shown include the gas fee (as an added amount not subtracted) for some reason so even if deducted doesn’t account for the fee? eg:
Fiat value
£0.72 per USDC £36,348.35
Fee
£98.77 0.06410323 ETH
Cost basis (for the token swapping to USDC which I have not shown)
£36,421.45
Gain
£25.68 [the ‘gain’ is actually a loss of over £70 not accounting the fee or ~£170 accounting for the £98 fee but instead KOINLY adds the £98 fee and it magically becomes a £25 gain??!!)
BTW it is only the blockchain transaction fees that are deductible expenses not trading fees on exchanges that are also included in the report.
Can anyone explain the above example to me? It seems that to correct the gain properly, you need to remove the gas fee twice not just once?? So even after adding the fees as costs separately (from the expenses report), it seems like it is still overestimating the gain? Or am I mistaken?
It’s a little difficult to provide a helpful explanation without seeing the full details of the example tx that you are looking at. I will try to help by doing a little guesswork. Apologies if I get something wrong on the facts.
From what you have outlined in your example, it appears that you were exchanging ETH for USDC. If you executed this tx on a defi like Uniswap, Koinly would have added the transaction fee of £98.77 paid in ETH to the amount of ETH being exchanged and a cost base would have been calculated for the total amount of ETH that you spent. Koinly then calculates the capital gain (or loss) by subtracting this cost base from the proceeds received, that being the fiat value of the USDC acquired in the exchange.
So, it looks like Koinly calculated your cost base for the amount of ETH being swapped plus the tx fee as £36,421.45. It looks like the proceeds realized in USDC were £36,348.35. Subtracting the cost base from the proceeds realized produced a capital loss of £73.10. This is the correct amount to report as a capital loss on the transaction.
Note the tx fee of £98.77 was used to benefit you by increasing the amount of the capital loss realized from the exchange. This was achieved by adding the tx fee to the cost base of the ETH disposed of.
You and Adrian (who posted a reply above) seem to be contemplating tagging the tx fee as an expense that is separately deductible from the net amount of your capital gains. If you do this you will effectively be taking a charge against (or deduction from) capital gains twice. Koinly has already added the tx fee to your cost base for capital gains calculation purposes, thereby reducing your capital gain (or increasing your capital loss). There is no need to try to tag the tx fee and deduct it separately.
BTW, Koinly’s use of the Cost tag is intended for stand-alone Spend transactions that represent costs or expenses that may be deducted from business income for income tax calculation purposes. This tag has no import for capital gains calculations. This is why Koinly does not deduct Costs from capital gains in the capital gains tax report. Hope this helps.
Just read a bit more but I thought I clearly showed that it is not reporting a loss at all but a gain of ~£25 (so the fee isn’t being removed from the gain but in fact it is added on!). Please check your own transactions to see if it is doing the same thing.
==
A gain could be possible if the cost basis actually includes the fee (which is then removed later - although it isn’t clear at all in the transaction that any of this happens) but the fee is in a totally different coin so not sure how it would be included in the cost basis?
Could you post a screen shot of the transaction from Koinly? I can’t see any way that Koinly would add a transaction fee to your capital gain for the exchange of coins. What it should do is add the transaction fee to the cost base of the USDC you acquired. This would ensure that the transaction fee is taken into account when you subsequently dispose of the USDC.
BTW I assumed these fees will be included in the expenses/costs but it seems most are not (not really sure which ones are labelled costs and which aren’t). So in essence, the transaction fee is never removed from the gain.
Below is a clear example from a ledger wallet transfer.
84 UNI tokens moved from the ledger wallet to coinbase.
The eth gas fee for this transaction is imported separately and would originally look like a withdrawal. I’ve then added the tag cost to this and a description.
However Koinly does not offset this cost against you capital gains. As stated in a different thread this is an allowable expense under HMRC guidance as it is to include the transaction on the distributed ledger.
Reply to Al1001:
Thanks for attaching the screen shot. I think I see where you are perhaps getting confused. When Koinly shows the cost base of 52,505.73 under the USD S/C being traded it is not adding the fee cost to the cost base of the USD S/C. Rather it is combining the cost basis of the USD S/D and the cost base of the ETH fee that you also disposed of. (I think this causes confusion in a tx like this where there are 2 different coins being disposed of but only one coin is shown on Spend side.)
Note that there are 2 crypto disposals in your transaction (USD S/C and ETH) so you have to calculate the capital gain or loss on each tx separately.
If you look at the columns and rows in the cost analysis, you can see how Koinly is calculating a capital loss on the USD S/C as follows: 51,743.70 (value of DAI received) less 52,486.55 (USD S/C cost base) equals -742.85.
Separately, you can see how Koinly has calculated a small capital gain of 24.29 - 19.18 = +5.11 on the disposal of the ETH to pay the tx fee.
The net capital loss on the 2 crypto disposals is -742.85 + 5.11 = 737.74. This is what is carried through to your capital gains tax report.
The key point here is that the transaction fee that you paid in ETH is not an allowable charge to add to the cost base of the USD S/C being disposed of. However, it should be an allowable charge that can be added to the cost base of the DAI you acquired in the tx. I believe this is what Koinly has done in assigning a cost base of 52,046.16 to your DAI holding. I can’t show you this in the screen shot because you have other DAI that had a cost base before this tx.
BTW, the ETH fee will not show up in your Koinly expenses report as it is not a separate Spend transaction that can be labelled a Cost. It is not a deductible expense for income tax purposes in any event so it should not be tagged as a Cost or otherwise deducted from any income for income tax purposes.
I hope this is helpful.
So gas fees are being taken into account I think?
Why can’t the other gas fee costs be taken off gains as that seems to be in the UK tax guidance? I just checked a few that are labelled as ‘cost’ and some of the transactions are just normal uniswap swaps (the ones I’ve seen have a route that involve more than two coins but this is normal in swaps unless swapping directly to or from ETH).
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