April 6th, 2018

By Kevin Walsh.

During 2017 we have seen a dramatic rise in cryptocurrency transactions such as Bitcoin and other blockchain based cryptocurrencies.

The CRA’s current position is that cryptocurrencies are considered property for Canadian income tax purposes and therefore any trades or sales must be reported in your income tax return. The CRA considers cryptocurrency to be a commodity for the purposes of the Income Tax Act and not a currency issued by a government of a country.

The CRA also believes that where Bitcoin is used to purchase goods and services, the transactions should be treated in a similar manner to other barter transactions. This means that any purchases and sales should be reported based on the value of the cryptocurrency on the date of the transaction. For example, if a taxpayer purchased a vehicle for 2 Bitcoins, the taxpayer would incur a taxable disposition of that Bitcoin equal to the value of the vehicle less the adjusted cost base of the 2 Bitcoins.

Similar to other properties, determining whether transactions are to be reported on account of capital or income will be a question of fact and largely based on intention. For example, if the intention was to purchase the cryptocurrency as a long-term investment, it may be considered capital property. Or, if it was purchased with the intention of selling for a profit, it could be considered inventory and the resulting gains or losses fully taxable. Sufficient records should be kept for all transactions. It should be noted that proving intention to hold a cryptocurrency as a capital property could be difficult.

The taxation of cryptocurrency is evolving.

If you entered into transactions involving cryptocurrencies during the year, be sure to notify your accounting professional so that they can discuss these issues with you in more detail.

Posted in Tax Tips for 2017 Tax Year

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