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Capital gain tax on cryptocurrencies has always been a matter that annoys not only crypto traders but also lawmakers. Recently, Israel’s Central District Court accepted the interpretation made by Israel Tax Authority regarding Bitcoin and other cryptocurrencies being an asset not a currency. Hence, making a profit on its trading is liable to capital gains tax, local news site Globes reported on May 21.
The Central District Court made the ruling in a case involving the blockchain startup founder Noam Copel of DAV and the Israel Tax Authority, which ultimately won the decision, Globes reported Tuesday.
As reported by Globes, Noam Copel, who founded the blockchain startup DAV, bought BTC in 2011 and sold it two years later — making a profit of $2.9 million at today’s rates. He argued that Bitcoin should be considered as a currency, and not an asset. Therefore, his profit should be seen as exchange rate differences received by an individual, not in the course of a business and shouldn’t be liable to tax.
In contrast to Copel, the Israel Tax Authority claimed that Bitcoin was not a currency back then and isn’t a currency even now; and therefore, it could not be a foreign currency. Arguing differently, the Tax Authority defined the concept of currency ‘with the organization putting forward the idea that currencies must have some physical manifestation under the country’s laws.’
Furthermore, the Authority said that Bitcoin is classified as an asset class but not as currency and hence, all the profits made on its sale are liable to capital gains tax. The court accepted the Tax Authority’s definition of ‘currency’ that is aligned with the Bank of Israel Law. The report states:
‘[A] currency must have some physical-concrete manifestation, and ruled that Copel had failed to demonstrate that Bitcoin met this definition, or that it represented a real alternative to coins and notes in any country.’
Coming to the final judgment, the judge of the Central District Court Shmuel Bornstein ruled that Noam Copel failed to prove his point regarding the acceptance of Bitcoin as a fiat currency. Ultimately, he couldn’t demonstrate that Bitcoin met the above definition of a currency, or that it represented a real alternative to coins and notes in any country.
Noam Copel must now pay tax on $830,000 of the profits he made; however, Copel does have the option of appealing to Israel’s Supreme Court.