How to Spend Your Tax-Free Bitcoin
Having now returned from a three-week absence, we must say it’s good to be back. Back in the world of markets, stocks, cryptocurrencies and revolutionary technologies.
But within 24 hours of being back, we were on the brink of meltdown. A meltdown thanks to the incompetence of government.
For a start, the Aussie government has decided they might decide the same-sex marriage debate by postal vote. Of course, the idea of getting 20-something million people to send a letter is about as believable as Tony Abbott’s claims that George Pell is a ‘fine man’.
As an Australian living abroad, the government’s failure to treat everybody with equal rights is an embarrassment.
Of course the UK also has its troubles. Transport Secretary, Chris Grayling just gave support to the £31.2 billion Crossrail 2 project in London.
The problem is it came days after Grayling cancelled other infrastructure projects outside of London. To show the bias towards London, you just have a look at the per-resident spending on publicly funded infrastructure in the UK.
Source: The Guardian
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Seem a bit out of whack? Sure Australia has its issues. But so does the UK. In fact, we can’t think of a single government doing a good job.
The frustrations of government eat away at us daily. At times it makes us want to get into politics. Maybe we can fix things. But then we’d end up a politician. So you can cancel that idea.
Instead, we have to work outside the box. That means we have to use our skills to find ways to beat the man, legally and comprehensively.
The best way we know to stick it to the man
And when it comes to avoiding the dangers of government, the best way we know is through cryptocurrencies. Right now, they are the single best way to avoid the influence and control of government.
That is, if you abide by my crypto principles. And the biggest one is to buy cryptocurrency and never convert it back to fiat money. If you do this, you might never need to pay any tax on it.
Take for instance the ATO’s guidance on bitcoin. This is what they say about using bitcoin to pay for personal transactions.
‘Generally, there will be no income tax or GST implications if you are not in business or carrying on an enterprise and you simply pay for goods or services in bitcoin (for example, acquiring personal goods or services on the internet using Bitcoin). Where you use bitcoin to purchase goods or services for personal use or consumption, any capital gain or loss from disposal of the bitcoin will be disregarded (as a personal use asset) provided the cost of the bitcoin is $10,000 or less.’
The way we read this is simple.
- Load up on bitcoin before it becomes worth more than $10,000.
- Use your bitcoin to buy goods and services for personal use.
Do that and you don’t have to pay any tax. This is particularly handy if you’re currently in the process of acquiring bitcoin.
And if you read my book, Crypto Revolution: Bitcoin, Cryptocurrency and the Future of Money, you’ll know exactly why that’s the best financial decision you might ever make.
How might this future using bitcoin look? Well here’s an example. And it’s the way I see the future of bitcoin playing out.
Today you buy bitcoin. Let’s say you buy $6,000 worth. That’s roughly two bitcoin today. And you put them away. You store them in cold storage (again, read my book to understand what this is and why it’s important).
Then in about 10 years’ time you come back to your bitcoin. Except this time instead of being worth $6,000 they’re now worth around $1.25 million.
That makes each bitcoin worth around $625,000.
Now if you had owned stocks in a listed company that had gone from $6,000 to $1.25 million you’d be sitting on a capital gain of $1,244,000. And you would have to pay some tax.
But if you hold that stock for 10 years you get a 50% discount.
You still have to pay capital gains tax on $622,000. And at the top tax rate (assuming no other income) you’d still have to pay around $265,000 in tax.
From your $1.25 million you would be left with just $985,000. One minute you’re a millionaire, the next, you’re not.
Then of course you could use your $985,000 to do as you please. Buy almost-a-house in inner city Melbourne. Or perhaps a rusty shed on Sydney’s North Shore.
But if you have two bitcoin worth $1.25 million, it’s a little different. Instead of having to sell those bitcoin into fiat money (which would likely trigger a capital gains tax event), you simply used those bitcoin. You spend them in the world for a house, a boat, a car…or all of the above.
Let’s say that there’s a real estate agent that accepts payment in bitcoin. And a car dealership that does the same. You would simply transfer the relevant amount of bitcoin for the goods.
Congratulations, you’ve beat the man.
But let us be perfectly clear about something. This is if you’re buying bitcoin as we’ve always recommended, with the view to use them in the future to buy goods and services. If you intend to convert them back to fiat money to realise gains, then you’re at the mercy of the taxman.
And as the usual tax disclaimer, none of this is tax advice. Please see your tax accountant for detailed, specific advice relating to your own tax situation.
The future isn’t without its troubles
Of course, this future that we predict has a few assumptions built in. First off, bitcoin will be worth massive amounts in the next 10 years. Second, that merchants like real estate agents and car dealerships will accept bitcoin as legitimate payment for goods.
The risk is neither of these situations eventuates, and bitcoin is worthless in 10 years. We don’t think it will be, but it’s a risk.
But then again, so is the risk that your government grinds the country into the ground, causing hyperinflation and a failing economy.
Sounds crazy? Go see what’s happening in Venezuela.
The thing is, bitcoin is like nothing else you’ve ever seen before. It has tremendous potential as a store of wealth, and the ability to be widely accepted as payment for goods and services. A digital asset and a digital currency, wrapped up into one.
However, right now a lot of this future is at stake. Bitcoin is about to experience a significant moment in its history. The way we see it, this will be perhaps the most significant moment it’s ever seen. And if it plays out the way we think it will, it will be the catalyst for the price to soar so that $625,000 per-bitcoin price tag doesn’t seem all that crazy.
But to find out why we think that, what’s happening and what you can do about it, you’ll have to hold station until tomorrow’s Money Morning.