Just a hypothetical scenario here! If someone sends their bitcoin to their friend's cold wallet, does that wipe out the capital gains tax trail back to when they bought it? Like, if the friend sells it after a month, is the only capital gains tax responsibility for that brief period? More importantly, how do tax authorities even track that the btc has shifted from the original owner to the friend? How would they link any taxable event back to the original owner's capital gain? How do they figure this out, if they can at all? I really can’t see how they can, which kinda sounds like a tax loophole to me.
There is a reason EU and UK that depend on taxes want their citizens to disclose their noncustodial wallet addresses to the government or regulators so that it will help them track the person's coins.
Know that the coins on the addresses of noncustodial wallet is very difficult to track except the person is know and investigated by the government.
Tax people can't know for sure where you moved you bitcoin or either you guve them to a friend or not. They see the incoming cashflow , exchange transaction and maybe can use chain analysis to track your transaction. They can even impose taxes on Gift . Under each country jurisdiction diff law may impose on you. Even though you're showing that you transfer's the fund to a friend if it's suspicious they may track you KYC through all the exchanges and do the chain analysis to caught you.
Btc maybe decentralized but it's not fully anonymous. So even though it may seems like a loophole there's always a solution for this kind of loopholes.
It will depend on whether your friend can prove all of this legally (you will have to draw up a sales deed and stock up on evidence).
The burden of proof will fall on the shoulders of the last buyer of bitcoin.
They won't "run after you and look for information", because they will pass new laws in such a way that you yourself will run to them and reveal all the information about your assets, voluntarily-forcibly.
They're "blind" until you tell them everything yourself.
These guys are in a "different" financial system.
Therefore, first of all, before they start pulling taxes from you, these guys will force you to declare information about your wallets and crypto assets.
No, sending BTC to a friend's wallet doesn't erase CGT history.
Tax authorities don't rely only on the blockchain address. They use exchange KYC records, bank flows, timing, and ownership evidence etc. to determine who actually controlled and benefited from the coins.
I guess, in most jurisdictions, if it's treated or considered as a gift transfer, the original cost basis and gain can still be attributed back to the original owner. The "new holder for 4 weeks or so" doesn't automatically reset anything.
So it's not really a loophole or something, it only looks like one from an on-chain-only pov.
No, in most jurisdictions gifting crypto is itself a disposal, so you still owe CGT on the gain up to the transfer date. Your friend just inherits a new cost basis from there.
They don't need to watch the chain. It surfaces the moment either of you offramps through a KYC exchange and the numbers don't reconcile with declared income.
Your hypothetical friend made the same question with you very recently!
https://bitcointalk.org/index.php?topic=5583862.msg66757129#msg66757129
If your bitcoins are known in address, any transactions from that address will be taken into account for your tax report. Capital gain tax or not, it depends on how you prove to tax authority that it's your sales with profit or loss. Surely they will look at Bitcoin prices at times of your inputs and outputs from that address too and will not only depend on your tax report.
Moving your bitcoins from on address to another address, in either hot or cold wallet, won't be enough to avoid your tax responsibility. Who cares that address is your friend's cold wallet or yours.
Your friend will likely report this to the tax authorities. Your friend will report you (or they'll get into trouble themselves). It's a sad reality. 🙋
When your friend sells Bitcoin, they'll be asked to prove the purchase expenses. If they can't, they'll have to pay taxes on the entire sale amount. They could also be fined for violating tax laws.
Therefore, it's highly likely that your friend will tell the tax inspector that they received the Bitcoin from you. Transferring ownership of an asset is considered a sale for tax purposes. Tax laws in almost all countries consider the sale of assets a taxable financial transaction. As a result, the tax authorities will demand that you pay taxes.
Also, be aware of KYC and AML procedures on all centralized exchanges. Furthermore, keep in mind that tax authorities actively use Chainalysis and Elliptic for blockchain analysis.
In my opinion, either you or your friend (or both) will run into trouble. I (of course) don't know all the intricacies of your country's tax laws, but the logic of tax laws is the same in all countries.🤷