The world of Cryptocurrency is a fast-moving ‘wild-west’ of business transactions. Fortunes have been made overnight and thieves have accounted for at least $80M in stolen cryptocurrency value. The industry is moving so quickly that tax authorities in many jurisdictions have not yet decided how it should be taxed. In Canada, the debate is ongoing. CRA’s initial position was set in the 2013 ruling “Bitcoins” in which they have held that gains and losses in the trading of cryptocurrency are on account of income. But, numerous requested rulings are set to be released in early 2018.
One area in which CRA did expound more definitively in this memo is in regards to GST/HST. Broadly, CRA ruled that transactions in Bitcoin are subject to GST/HST. This presents a host of double taxation issues for consumers recording sales and ITCs.
Another further area of concern, in which CRA and the IRS have not yet established guidance, is in the area of foreign reporting. Should holdings of cryptocurrency be reported on a T1135 or FBAR?
Since holdings in cryptocurrency are decentralized, stored in a world-wide web of member servers which require agreement between them in order to verify a transaction, an argument exists that cryptocurrency has no domicile whatsoever. And is therefore, foreign, in regards to any reporting jurisdiction.
The IRS, in only November of 2017 ordered that Bitcoin make available to the IRS all of their transaction logs from 2013. When considered along with CRA’s successful demand in December to have the Paypal business account records released to the agency, it is not unreasonable to assume that cryptocurrency records will also soon be in the hands of the CRA for scrutiny at their leisure.
It has already been heard in 2017 that the Big Four accounting firms are moving to treat their clients’ holdings in 2017 as foreign holdings for the 2017 tax year. The safest course of action is likely to begin disclosure now. There is no way of knowing how the CRA or IRS plan to treat unreported accounts prior to a formal statement of guidance. By then, it could be well too late to avoid potential penalties for years of unreported accounts.
For guidance on how to report your cryptocurrency transactions and holdings to the CRA and the IRS, both personal and business, contact Shawn Bausch.
Shawn Bausch is a tax manager at Sloan Group. Set up a free tax consultation today with Shawn at firstname.lastname@example.org or 416-665-7735, extension 335.