In our prior update entitled Cryptocurrencies and Tax: Five Things Every Canadian Needs to Know, we explained the Canada Revenue Agency's (the "CRA") views on the taxation of cryptocurrency, which the CRA had provided in bits and pieces in 2013 and 2014. The CRA had made its views known through various technical interpretations and rulings that were somewhat difficult to navigate. Luckily for Canadians who work and play in cryptocurrencies, the CRA has now consolidated its views into one document, released on March 8, 2019: Guide for cryptocurrency users and tax professionals (the "Guide").
For the most part, the Guide consolidates the CRA's views that were summarized in our prior update. However, the CRA does provide some additional details that are worth pointing out.
Exchanging One Cryptocurrency for Another
In the past few years, there has been some suggestion that a holder of one cryptocurrency could exchange such cryptocurrency for a different one – for example, trading one Bitcoin for one unit of Ethereum – on a non-taxable basis. Some people argued that because the exchange was "like-for-like", it should not be a disposition for tax purposes. However, there is no such rollover for Canadian tax purposes and the Guide spells this out. It states that when a holder disposes of one type of cryptocurrency to acquire another cryptocurrency, the barter transaction rules apply, and the holder must convert the value of cryptocurrency received into Canadian dollars and report the disposition on his/her tax return. The Guide includes several helpful examples that provide more detail regarding the tax considerations surrounding certain transactions, including the example of a Canadian who purchases units of Ethereum using Bitcoin.
Keeping Track
A commonly asked question to tax practitioners is: "How do I prove to the CRA what I bought or sold?" In the Guide, the CRA provides some guidance on the types of records that need to be kept, including by individuals buying and selling cryptocurrency, businesses that accept cryptocurrency and individuals who mine cryptocurrency. The CRA recognizes that there are numerous cryptocurrency exchanges, with varying degrees of record keeping, so taxpayers should export, download or record any information from such exchanges at the time of the transaction. Specifically, taxpayers should keep track of the date of the transaction, any receipts, the value of the cryptocurrency being bought, sold or exchanged, the digital wallets and cryptocurrency addresses of all parties, a description of the transaction and the name of the other party or parties to the transaction. Basically, the more information a taxpayer can gather and provide to the CRA, the less likely they are to be asked questions. Similarly, miners of cryptocurrencies should keep detailed records surrounding purchases of hardware and expenses (e.g., rent, power costs, fees, maintenance), among other things.
Although the Guide does not provide a lot of new information, it is useful to now have a single reference document containing the CRA's consolidated views on the taxation of cryptocurrency. This would have been very helpful to have back in 2013.
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