UK users should vote to get this bug fixed regarding transfer fees!
If you have lots of transfer fees this error is affecting the calculation and you are paying to much tax!
Cheers,
Adrian
Nice one! I didn’t know about this and have voted.
Just trying to get my head around what it means…
If Koinly currently marks the transfer fees as a cost, don’t we just subtract the costs from the capital gains?
Or does that not get the same result?
Hi Adrian, I just found this via your response to another post in which you mentioned this bug report.
It looks like you are focused exclusively on wallet transfer fees here, i.e. fees charged where you transfer crypto from your Coinbase wallet to your Ledger wallet or vice versa. It’s my understanding that these types of wallet transfer fees are not considered allowable charges for capital gains purposes under HMRC rules and guidance because they are not strictly related to the disposition or acquisition of the crypto. As such they shouldn’t be added to the cost base of the crypto being transferred or be deducted from the final sale price of the transferred crypto for capital gains calculation purposes.
Having said this, I believe that Koinly does allow you to avoid having your wallet transfer fees reduce your cost base of the transferred crypto by not selecting the “Treat transfer fees as disposals” button in your Koinly settings. Taking this approach, you can effectively add wallet transfer fees to the cost base of your transferred crypto and thereby allow these fees to reduce the capital gain on ultimate disposal.
The options for dealing with transfer fees using the settings button are discussed in a Koinly Blog Post under the section headed How does transfer fee tax work? at the following link:
Hope this is helpful.
Mark,
But that is where you are wrong you need to read the HMRC guidance for individuals and not something posted on a Koinly blog that is not correct! see link below.
Allowable cots include “transaction fees paid for having the transaction included on the distributed ledger”
Now for example ETH gas fees cannot be included within the transfer of a coin such as FIL from a hardware wallet to an exchange. They have to be listed separately as a cost. These costs are not offset against capital gains by Koinly and are listed in the expense section of the full tax report.
This is wrong as quite clearly the eth gas fee is to include the movement of the coin on the distributed ledger (in above example FIL coin). This is clearly an allowable expense in HMRC guidance but is ignored by Koinly.
Regards,
Adrian
I don’t think your interpretation of the HMRC Guidance, which I have read many times, is correct when it comes to transfer fees. The guidance you have referenced: “transaction fees paid for having the transaction included on the distributed ledger” is referring to transactions that are directly related to acquisitions or disposals of crypto. Wallet transfers can generate fees in a variety of circumstances that are not related to acquiring or disposing of a crypto asset. Maybe you want to move crypto from an exchange wallet to a ledger wallet for security. This does not add value to the crypto itself nor is it a cost directly incurred in acquiring or disposing of the crypto.
The HMRC Guidance in Crypto22150 specifically refers to section 38 of the Taxation of Chargeable Gains Act (TCGA) 1992 as the basis for HMRC’s view on allowable costs for cryptoasset disposals. It is a technical section but it clearly provides that costs are only allowable if they relate to the acquisition or disposal, or are incurred wholly and exclusively … for the purpose of enhancing the value of the asset.
Having provided the above rebuttal, I do want to point out that a number of commentators, including Koinly, have stated that adding transfer fees to the cost base of the crypto being transferred is an aggressive approach that one might choose to take on the basis that HMRC has not yet provided clear and specific guidance on the deductibility of crypto asset transfer fees for capital gains purposes.
The best discussion of the options for dealing with transfer fees that I have seen in the UK context is Koinly’s Blog Post titled What are Ethereum Gas Fees and How are they Taxed? The discussion on transfer fees (pasted below) outlines 3 different approaches for dealing with transfer fees in the capital gains context, indicating their view on conservative vs. aggressive. Koinly states that they have implemented the conservative view in their software which I think makes sense pending clear and specific guidance on transfer fees from HMRC.
Transfer gas fees
Sometimes when you transfer assets between wallets, you’ll pay a gas fee. However, the Capital Gains Tax guidance in most countries is quite clear that you can only add fees associated with acquiring or disposing of an asset to your cost basis. You’re not doing this when you make a transfer.
There isn’t any clear guidance on this yet from any tax office. So you can choose to take a conservative or a more aggressive approach to your crypto taxes.
A conservative approach would be to treat this as a taxable event. You’re spending ETH - like on a good or a service - so it’s subject to Capital Gains Tax.
A more measured approach is to claim it as spent, but not recognize any capital gain or loss from the transaction.
Finally, an aggressive approach would be to add it to your cost basis.
We recommend a conservative approach to transfer fees as other approaches may not stand up to scrutiny by tax authorities.
Thank you for the detailed response. For me it should still be up to the user if they want to take an aggressive approach to tax on transfer fees or the more conservative default approach of Koinly.
I still think Koinly should implement a new tag “Transfer Fee” as an alternative to cost so all transfer fees are listed in one section of the full tax report in the expenses section. Implementing this feature wouldn’t change the current tax calculation in Koinly but would make it much clearer what is a “transfer fee” instead of having them mixed in with a list of costs.
It would also then make it easier for the user to take an aggressive approach to tax as all these transfer fee costs would all be listed in one place and trackable but as they would have to do this manually it would remove any liability from Koinly.
I agree that it would be helpful to tag transfer fees that are not being added to the cost base of the transferred crypto. Right now Koinly is tagging some but not all transfer fees as Costs. Some transfer fees do not appear as a separate tx tagged as a Cost. Rather they are embedded in the transfer tx itself and thus can’t be flagged as Costs. However these transfer fees are generally flagged with a red fee notation on the right side of the entry. Clearly Koinly is capturing these transfer fees so they could be tagged as you suggest.
As I am running Koinly for a business, I can make the case that all transfer fees are business expenses deductible against the crypto income being generated. The transfer fees tagged as Costs are easy to deduct because they show up in the full Tax Report as Costs. However, the embedded transfer fees do not show up in any of the tax reports so I have to manually go through all of the Transfers to create a separate spreadsheet of these deductible expenses outside of Koinly. Your proposal to tag these types of transfer fees would certainly help me.
Has nobody noticed that some basic uniswap swaps are being tagged as costs? Also, since most routes go through more than two coins for a single swap, does koinly have to consider all the intermediary coins too before the final coin?
Regarding fees, it is strange how with other capital gains solicitor’s fees etc can be taken off but it is questionable whether you can do the same with normal crypto costs. All transaction fees should be taken off the gains in my view, especially as every spend of ETH in gas is also counting as a disposal so it can’t be argued that it is not related to disposals.
UPDATE: In my last post above I made the following comments about Transfer Fees:
The transfer fees tagged as Costs are easy to deduct because they show up in the full Tax Report as Costs. However, the embedded transfer fees do not show up in any of the tax reports so I have to manually go through all of the Transfers to create a separate spreadsheet of these deductible expenses outside of Koinly.
After further investigation I have discovered that Koinly does appear to include the embedded transfer fees in its full Tax Report. It is just one line in the Expenses section on page 3 of the Report. It is named Transfer Fees and appears to me to be the total of all of the transfer fees that are flagged with a red fee notation on the right side of each Transfer tx entry (as well as some Exchange tx entries).
Given this I am no longer manually going through all of the Transfers in my wallets to create a separate spreadsheet of these deductible expenses outside of Koinly. However, it would be helpful if Koinly posted a specific and detailed Blog Note explaining how these embedded Transfer Fees are tracked and calculated for purposes of the line item in the Expenses summary report. In fact, Koinly could perhaps go further and include a separate section in the full Tax Report listing all of the txns and Transfer Fees included in the one line total, just as it does with Costs.
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