With the establishment of the first BitCoin ATM in Vancouver, it is apparent that BitCoin has entered the mainstream. Taxpayers may wonder, “What is BitCoin? Where can BitCoin be used? Is it taxable or tax-exempt?”. Our team of Canadian tax professionals at AG Tax have created a brief explanation of BitCoins, including what BitCoins can be used for and how they should be treated for tax payers in Canada.
What are BitCoins?
BitCoin is the world’s most popular digital currency (electronic money). BitCoin exists for peer-to-peer payments, and can be traded for conventional money like dollars and euros. There has been a significant growth in BitCoins in a very short time span.
All BitCoin payments are digitally signed, using cryptography to secure the transactions. In addition to this, payments done through BitCoins have much lower transaction fees than the typical 2% to 3% transaction fee rates that are imposed by credit cards.
As of the date of this publication, BitCoins are decentralized, meaning that no government regulation is involved in the issuance and trail of BitCoin transactions. However, as BitCoins continue to emerge as a means of legitimate exchange, and the possibility of tax evasion increases, government regulation is a possibility.
What can you use BitCoins for?
BitCoins can be used to pay for online goods and services where BitCoins are accepted. By using BitCoins for online goods and services, currency translations are eliminated. With great price swings in the value of BitCoins, many people hold BitCoins as commodity investments. Recently, people have even begun receiving part of their salary in BitCoins.
BitCoin Transactions and Tax Treatments
•The Canada Revenue Agency (CRA) considers a BitCoin transaction a “barter” transaction (rather than a monetary transaction). BitCoins, either as barter (virtual payments) or investment commodity, are subject to tax. For example, if an individual pays for a movie with BitCoins, the ticket price must be included in the seller’s income for tax purposes.
• Recipients of BitCoin income must assign a fair market value to these payments.
• Capital Gains Tax Rule applies on the value of BitCoins that are treated like investments and traded (bought and sold) for gain or loss by taxpayers. Any resulting gain or loss may be subject to capital gains tax.
AG tax strongly recommends that Canadian taxpayers using, or interested in using BitCoins seek professional advice to ensure proper reporting to the CRA. As BitCoin transactions are unregulated, decentralized, and can be traded internationally, the CRA will likely investigate BitCoin transactions in the future.
AG Tax LLP can help
If you have been using BitCoins, or may use BitCoins in the future for payments or as investments, or have any general tax queries, please contact AG Tax. Our tax professionals are highly-experienced with U.S. and Canadian personal, corporate and estate tax laws and can provide you with assistance and tax planning that best suits your individual situation.
Furthermore, as a full service accounting firm, AG Tax assures complete assistance with even your most complex tax needs.
We can assist with:
- Canadian Personal and corporate tax returns
- Cross Border Taxation and Business Planning
- U.S. Personal and Corporate Taxation
- Disclosure of Foreign Assets and other information filings
- Retirement planning
- State Sales Tax & E-commerce Taxation
- Estate Planning, Inheritance tax advice
To obtain a quote or to arrange for a consultation to discuss your tax related queries, please contact us at:
- 416-238-5920 (Greater Toronto Area, ON)
- 604-538-8735 (Greater Vancouver Area, BC)
- 780-702-2732 (Greater Edmonton Area, AB)
Disclaimer: The information in this publication is accurate as of the time of its publication. AG Tax assumes no responsibility for changes to tax legislation subsequent to the publication of this document. The information provided is for general information purposes only and should not be acted upon without seeking professional advice. If you would like to engage our services, please contact our staff and obtain authorization to send our firm confidential information. A client relationship is not created by the transmission of information. A client relationship is only formed with our firm when a scope and engagement letter signed by the firm and the potential client detailing the terms of engagement is present.