My question is in relation to UK tax as explained in this document, however it should be applicable to other jurisdictions as well.
Ethereum is a platform for decentralised finance. Unlike Bitcoin, developers can build complex applications on top of the base layer, such as:
- USD Coin, an ERC20 representation of the US dollar created by Coinbase and Circle
- Uniswap, an automated token exchange where you can buy and sell Ether (the native token of the Ethereum blockchain) for other ERC20-tokens
Imagine that I bought 1.01 Ether on Coinbase last year, withdrew it to my Ethereum wallet (such as MetaMask) and sold 1 Ether on Uniswap in exchange for 100 USDC.
Here's the catch. For my transaction to be included in the blockchain, I had to pay a network fee in the form of gas, which is denominated in Ether. Although the costs was much less, suppose that I paid 0.01 Ether for my Uniswap trade.
So I got approximately $100 worth of value in exchange for 1 Ether, but I also paid approximately $1 (the 0.01 Ether) for my transaction to be processed by the blockchain.
Now, the following statements are simultaneously true:
- I'm allowed to deduct any transaction fees from my proceeds
- Making a payment with Ether tokens is considered a disposal of Ether tokens
Therefore, the network fee CANNOT be deducted from my proceeds, because it's offset by a disposal of Ether of the same amount, which happened at the exact same time.
The rationale would've been the same if I bought 1 Ether with 100 USDC and paid 0.01 Ether for the network fee, with the only change being that the fee couldn't have been added to the cost basis.
I think this is a bit like buying or selling gold to a broker and paying the brokerage fees directly in gold.
Is my rationale correct?