With the recent market uproar for blockchain technology and cryptocurrency, the tax question is becoming more and more pertinent. Whether one is trading in cryptocurrency, issuing it in an effort to raise capital, hanging onto it as a long term investment, mining it or using it to access software apps, numerous questions arise.
Answering these questions with any measure of certainty, however, is tough. No legislation has been introduced and no Canadian case law has yet been decided on cryptocurrency (although one surmises that that won’t be the case for long). The Canada Revenue Agency (CRA) has released a few interpretations, but these are of debatable value, having been released in 2013 and 2014. These interpretations have also been challenged by members of the tax community, and it is unclear whether a court would take the same positions, should the question of the tax treatment of cryptocurrency come before it.
The CRA positions
The CRA views provide a helpful guide as to what position the CRA may take in assessing tax on cryptocurrency transactions. Their views can be summarized as follows:
- Bitcoin and other cryptocurrency is not considered to be “money” or “currency” for the purposes of the Income Tax Act (the Act), but rather a “commodity”, meaning that:
- Purchasing any other property using cryptocurrency will be considered to be a barter transaction, with Sections 3 and 9 of the Act applying to tax the profit from the transaction;
- In exchanging cryptocurrency for other property, the value of whatever is received will be at least the value of what is given up and the taxable gain/loss will be incurred accordingly; and
- Exchanging one cryptocurrency for another cryptocurrency would trigger a disposition for income tax purposes, potentially triggering a taxable capital gain.
- Individuals selling goods or services in exchange for cryptocurrency will have to report the income in Canadian dollars;
- Where a taxable supply is made and cryptocurrency is given in exchange, the consideration for GST/HST purposes is equal to the FMV of the cryptocurrency at the time;
- Where a person trades or sells cryptocurrency like a commodity, the gain may be on either income or capital account and it is a question of fact in each scenario (much like trading in securities);
- Whether activities using cryptocurrency are subject to tax depends on whether they are pursued for business, profit or commercial reasons and the Stewart test applies;
- “Mining” cryptocurrency is likely to be a business, and as such, the rules for valuation of inventory in section 10 and Part XVIII of the Income Tax Regulations will apply, where:
- whether cryptocurrency is held as capital property or inventory is a question of fact; and
- either the Lower-of-Cost-or-Market method, or Fair Market Value method can be used to value the inventory, unless the business is an adventure or concern in the nature of a trade (ACINT), in which case the valuation method to use is the cost of acquisition (as per subsection 10(1.01) of the Act).
- Cryptocurrency could be a taxable employee benefit and included in employment income under 6(1)(a) of the Act; and
- Cryptocurrency would be considered to be “specified foreign property” for the purposes of subsection 233.3(1), as “funds or intangible property” in paragraph (a) of the definition of “specified foreign property”, meaning if one holds cryptocurrency offshore, with a cost of $100,000 or more, the holding of which has to be reported to the CRA.
As stated, the views above may not necessarily be correct in law. Some authors have suggested that cryptocurrency would not be a “commodity”, but rather “money” for the purposes of the Act. After all, it does have the key features of “money”; it provides a means of exchange, a unit of measurement and a store of value. In fact, there is even a 2013 U.S. District Court decision that found that Bitcoin is “money” or “currency”, albeit for the purposes of U.S. securities laws.
If found to be “money”, interest could potentially be deductible if one borrows cryptocurrency to invest in business or property. One could also potentially invest in it through their RRSP, and it would likely be GST/HST exempt. Lastly, purchasing property with it would not give rise to a taxable event, which would be the case if the cryptocurrency were a commodity and subject to barter transaction treatment.
Irrespective of the above, the tax treatment of cryptocurrency will largely depend on the precise terms of the cryptocurrency in question, such as whether it is convertible or exchangeable into fiat currency and whether it is used as a simple utility token to gain access to an app, or actively traded for the purpose of earning a profit. The facts surrounding its issue, use or investment will also be key.
It is important to keep in mind that just as the markets have taken notice, so has the CRA and the Department of Finance. One hopes something will come soon to alleviate the uncertainty. In the meantime, what is certain is that block chain and cryptocurrency are here to stay, at least for a while.
 CRA documents no. 2013-0514701I7, 2014-0525191E5, and 2014-0561061E5
 Stewart v. The Queen 202 SCC 46 – whether there is a reasonable expectation of profit from the alleged business activity.
 Olivier Fournier and John J. Lennard “Rebooting Money: The Canadian Tax Treatment of Bitcoin and Other Cryptocurrencies,” Report of the Proceedings of the Sixty-Sixth Tax Conference, 2014 Conference Report (Toronto: Canadian Tax Foundation, 2015), 11:1-27
 Texas Securities and Exchange Commission v. Trendon T. Shavers and Bitcoin Savings and Trust, Civil Action No. Civil Action No. 4:13-CV-416
 As per the 20(1)(c) requirement that there be “borrowed money”.
 The definition of “qualified investment”, under section 204, includes “money” in paragraph (a)
 For Excise Tax Act purposes, it would be an exempt “financial service”, as the definition of such includes “money” in paragraph (a).
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