Calculation Methods

Table of contents

1. Calculation method
   1. How we determine open vs close
   2. Calculating realized profit & loss
   3. Transaction collapsing
2. Calculating cryptocurrency prices
   1. For transactions settled in fiat currency (e.g. JPY, USD, EUR)
   2. For transactions settled in cryptocurrencies
      
   3. Data unavailability
3. Fee handling
   1. Transaction fees
   2. Transfer (blockchain) fees
4. Fiat currency exchange rates
5. Calculations for different transaction types
   1.  Calculations for different transaction types
   2.  Self-transaction fees
   3.  Calculations for derivatives
6. US tax specific treatment
   1. Wash sale support
   2. Long and short term capital gains separation

1. Calculation method

For each uploaded transaction, we will judge whether the transaction is "Open" (i.e. opens a new position) or "Close" (i.e. closes an existing position) and use this to calculate profit and loss.

1.1. How we determine open vs close

Consolidate the transactions included in all the uploaded files into one list of transactions ordered by transaction time (oldest to newest).

• Per currency, search for a new buy or short-sell transaction and mark it "open".

• Per currency, every transaction encountered that is in the opposite direction of any "open" transactions is marked as "close". The following is done when the quantity on a "close" transaction exceeds the quantity of the "open" transaction:

  • Cryptocurrency coins/tokens: 
    If the user attempts to sell more than he owns, "oversell" will be displayed. Please confirm that all transactions have been uploaded correctly.

  • Derivatives (e.g. futures, options, swaps etc) on cryptocurrencies: 
    The transaction will be split into one "close" transaction with a quantity of the existing "open" transaction, and one "open" transaction with the remaining quantity.

1.2. Calculating realized profit & loss

Realized profit/loss will vary according to the accounting method as described below.

What is Realized Gains/Losses?

Cryptact supports the following four methods of calculating average acquisition price.

* "Open Transaction Price" varies depending on the accounting method selected (Average cost is the default method for Yen).
What is Periodic Average Cost/Average Cost（ Unit Price）

Additionally, please note that losses are not carried forward across fiscal years (i.e. a loss in 2017 will not offset a gain in 2018).

1.3. Transaction collapsing

For transactions with similar parameters that take place in consecutive, rapid succession we will collapse these down into one transaction for calculating the user's ledger.

What is transaction collapsing?

2. Calculating cryptocurrency prices

The calculation method depends on the transaction as noted below.

2.1. For transactions settled in fiat currency (e.g. USD, CAD, JPY)

The transaction price is used for the cryptocurrency price. If the user's accounting currency is different than the transaction settlement currency, a conversion is done as described in "Fiat currency exchange rates" below.

2.2. For transactions settled in cryptocurrencies

When trading other cryptocurrencies denominated in a supported counter currency, the transaction price is converted to the user's reporting currency based on the currency rates calculated by cryptact.

2.3. Data unavailability

If a transaction is uploaded with a timestamp greater than the latest data availability date of cryptact, an error will be displayed. If this happens, please wait for a while and try again.

3. Fee handling

3.1. Transaction fees

• If the fee currency is the same as the user's reporting currency (*), the fee amount specified in the transaction is used. If the fee currency is not the same as the user's reporting currency, we will convert the fee amount with a rate obtained from our sources detailed in 4. Fiat currency exchange rates. For fees, the fees at the time of opening are included in the calculation of the average acquisition cost of the base currency. The fees at the time of closing are deducted from the realized profit and loss of the corresponding transaction.

(*) What is reporting currency? -- This is the currency that will be used to denominate all profit/loss values and price translations in your ledger. You can change it from the Ledger settings screen.

• Transaction fees in cryptocurrency: We will use the same logic dictated in "2. Calculating cryptocurrency prices" to convert the fee to the user's reporting currency to reduce the PNL when processing a CLOSE transaction. The following steps are taken to correctly reflect the fee into the PNL when processing a CLOSE transaction.

(*) What are Open/Close transactions? -- 1.1. How to determine open vs close

If you specify a fee in cryptocurrency for Action="LOSS" or Action="BONUS" with zero cost, the fee amount is also processed as a loss. The overall PNL should be the same.

(*) Automatically Generated Sale/Purchase of Crypto Fee from Previous Transaction

3.2. Transfer (blockchain) fees

A user can choose whether or not transfer (blockchain) fees will be expensed through the settings page. 

• In Japan, it is highly unlikely that transfer fees will be accepted as tax write-offs. 
• In Canada, transfer fees can be claimed as expenses, and the cryptact setting is enabled by default.

Please note: For individuals, whether the transfer fees can be expensed depends on the country and individual situations . Please consult with your tax adviser before using this setting.

4. Fiat currency exchange rates

If the counter or fee currency of a transaction is in fiat but different from the user's reporting currency, cryptact will use rates from FRB (USD), ECB (EUR) and MUFJ (JPY) to calculate the user's ledger.

5. Calculations for different transaction types

5.1. Calculations for different transaction types

For more details on the PNL calculation for each transaction type, please refer here.

5.2. Self-transaction fees

At some exchanges, when a user trades with themselves to create an execution (buying their own offer, selling their own bid), the exchange will print an execution showing no position change but will take fees for the transaction. When cryptact processes one of these trades, the fee associated with the execution is recognized as an expense. If it is in fiat, a "CASH" entry is created with the value paid. If it is in a cryptocurrency, a "LOSS" entry is created with the value paid.

5.3. Calculations for derivatives

6. US tax specific treatment

If the user selects USD as their reporting currency, the below options can be selected through the settings menu.

6.1. Wash sale support

If a certain currency position is closed and then reopened within 30 days, the loss cannot be realized. Instead, the loss is included in the cost of the next open transaction.  There is no clear guidance on wash sale treatments for cryptocurrency at this time.  Please consult with your tax adviser.

6.2. Long and short term capital gains separation

Realized gains/losses will be split between gains/losses made from positions held less than 1 year (short term) and from positions held for more than 1 year (long term).

This is because different tax rates are applicable to short term capital gains vs long term capital gains.