Crypto cashback and reward cards roared onto the scene over the past few years, driven by the growth of platforms like Crypto.com, BlockFi and Gemini.
When you spend cryptocurrency, it’s usually taxed, and such is the case when spending with crypto on these cards.
Danny Talwar, the Australian Head of Tax at crypto tax platform Koinly, explains, “People spending with crypto reward cards must understand the tax implications of doing so,”
In its first-quarter results, Visa announced that customers had made US$2.5 billion via crypto-linked cards to pay for everything from retail goods and services to restaurants and travel.
So while consumer adoption has been high for crypto credit and debit cards, many consumers may not realize they could owe taxes after flashing the plastic at the checkout.
Crypto debit cards involve loading up a card’s balance with cryptocurrencies. Cardholders will realise a taxable event when the crypto is sold on payment for goods or services, meaning they’ll need to keep a record of any gains or losses on disposal.
“Some platforms also require users to stake crypto to unlock certain rewards. If these tokens are ever sold or earn additional interest, there might be multiple taxable events occurring”, Talwar stated.
Alternatively, crypto credit cards are usually offered after a credit check. These typically offer between 1% to 3% “cashback” in cryptocurrency.
“These differ from traditional points-based card programs as they sometimes require staking of a native token to earn rewards,” Mr Talwar said.
“This may also mean if the crypto is held for a longer period and results in a gain for the user – they’ll also need to pay Capital Gains Tax on these tokens,” he continued.
The downside of crypto reward cards is that you may create taxable events for yourself every time you spend. This is something you don’t need to take into consideration when using regular reward cards – but Koinly can help make your crypto tax simple.
We work with all the major crypto providers, including Coinbase, Binance, Crypto.com, BlockFi, and Gemini.
All you need to do is sync your exchanges and wallets with Koinly (through API or CSV file import), and we can calculate your crypto taxes for you – including any disposals of crypto from spending.
About Koinly: Whether it’s Crypto, DeFi or NFTs, Koinly saves you valuable time by reconciling your holdings to generate a compliant tax report in under 20 minutes.
Sign up today and see how much you owe!
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Disclaimer: Koinly is not a financial adviser. You should consider seeking independent legal, financial, taxation or other advice to check how this information relates to your unique circumstances.