Revenue Canada says BitCoins aren’t tax exempt
BitCoin is in the news as of late and, in becoming more mainstream, has found it’s price sky rocket (and then collapse) as speculators play with the concept. As the use of electronic currencies is rather anonymous, governments are wading into the fray: Revenue Canada says BitCoins aren’t tax exempt
“BitCoins are a fringe online currency that entered the mainstream this year after speculators rushed in and caused their value to more than quadruple in value. Originally designed as a virtual currency alternative to conventional money, the cash value of a BitCoin jumped from under $50 US to above $250 and back earlier this month, as speculators flooded the market after awareness of them grew. Price swings like that mean some BitCoin buyers and sellers likely made or lost a lot of money, which raises the question of how that will be handled come tax time.”
The tax man always get his cut.
“The CRA told the CBC there are two separate tax rules that apply to the electronic currency, depending on whether they are used as money to buy things or if they were merely bought and sold for speculative purposes.”
The CRA used and still uses the same rules respective to buying and selling of homes. During the housing boom people were buying houses, holding them for a short period and then selling them. They would try to claim them as their principal residence but when you do that more than a couple times, it’s a business.
“Paragraph 3 of the CRA’s Interpretation Bulletin IT-490 clearly states that in a barter transaction between arm’s-length persons, “we generally consider that the value of whatever is received is at least equal to the value of whatever is given up. In the above example, that means whatever you’ve received in exchange for your $1 worth of vegetables must be documented as a taxable gain of at least $1 somewhere.”
Basically, you can’t avoid reporting income just because you weren’t paid in cash. The lack of the existence of cash in a transaction doesn’t mean income was or wasn’t made. If what you traded cost you less than the value of what you received in the trade, there is an income gain on the difference.
“Some advocates of the electronic currency, which only exists as unique codes in complex crytpographic algorithms, have said one of its advantages is that it can be traded and moved across national boundaries without governments being aware. But as the CRA statement shows, governments are starting to pay attention.”
I suspect that if electronic currencies become more popular and the CRA fails to prevent tax evasion through the use of them, they will make the use of electronic currencies illegal and prosecute those who use them.