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Cryptocurrency is not exempt from taxation, Canadian government argues

For miners or traders who ride the volatile market for the cryptocurrency Bitcoins, the digital money can be a lucrative source of real-world income.  Bitcoins in theory are unregulated by any government entity and difficult to trace.  But the Canadian government is looking to change that.

With Bitcoin cash value increasing five-fold to around $250 USD/Bitcoin in April, the Canada Revenue Agency is salivating at the prospect of extra taxes from its domestic miners/traders.  The CRA says that when using Bitcoins for transactions Barter Transaction rules -- long an offline-focused rulebook -- are in effect.  These rules mandate taxes on bartered goods, and Bitcoins are no exception.  The government's rules state that the value of what is received is used to determine the value of what's given up.

Paragraphs nine through 32 of the CRA's section IT-479R, Transactions in Securities, explain that Bitcoins sold for real world money are either counted as income or capital gains.

Bitcoin ButtonBitcoin badges
The CRA will be hunting for Bitcoin tax dodgers for the first time.
[Sources: Bitcoin Forum (left); Nerd Merit Badges (right)]

Some Canadians are already claiming Bitcoin income on their taxes.  Comments Regina currency trader Jeff Cliff in a CBC interview, "It's fairly anonymous system.  I'm not so much into the privacy side of it, so that's why I claim it."

Others feel the government should keep their hands off Bitcoins.  But Canadians who think the CRA is treating Bitcoin earnings or barter as an "honor system" may be in for a rude surprise.  The CRA told the CBC that it will be watching for unreported Bitcoin revenue this year. 

CRA taxes
The CRA will reportedly crack down on unreported Bitcoin revenue. [Image Source: The CP]

Saskatoon realtor Paul Chavady who has taken the unusual step of allowing buyers to use Bitcoins, explains how this could work, commenting, "When you sell [the BitCoins], they will deposit that in your account.  As soon as it turns into Canadian dollars, it's back in the eyes of the CRA and everybody else. If you get a big deposit of $10,000, or $100,000, [CRA is] going to say, 'Hey, where did that come from?'"

In other words don't count on cryptography to protect you if you cash out your Bitcoin wealth for real world purchases; the (Canadian) tax man knows better.

Source: CBC



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hhmmmm
By lolmuly on 4/29/2013 1:18:01 PM , Rating: 3
if they want to collect taxes on bitcoin, how about making them payable in bitcoin?




RE: hhmmmm
By mcnabney on 4/29/2013 2:33:36 PM , Rating: 2
Governments only accept taxes in their own currency. You can't send two cows and ten chickens to the IRS (or the Canadian equivalent). Bitcoins are really more of a commodity based upon their deflationary nature.


RE: hhmmmm
By lolmuly on 4/29/2013 5:14:35 PM , Rating: 2
If the canadian government wants to levy a canadian dollar tax on coins that get converted into canadian dollars, that's fair.

However taxing a transaction made in another currency, and making said tax payable only through first converting the currency, transferring it to a bank, waiting several days for the transaction to confirm, and then submitting said tax through some surely byzantine paperwork maze is just ridiculous.

Sales taxes only work because it's immediate and the average consumer doesn't have to think about it. Anything that requires that much work will turn away even the most patriotic of super citizens.

Second Point:

You define a currency only by inflationary terms? I was under the impression that the definition of a currency was still: "A medium of exchange"

you can argue the merits of deflation/inflation but that doesn't define something as a currency. (To my knowledge almost all currencies have deflated at one point or another)

Bitcoins are appealing because I can send the value of a small island or hollywood mansion around the world several times a day at virtually no cost, instead of paying a 6% fee and waiting a week. In this way bitcoins are far more a "medium of exchange" than dollars will ever be.


RE: hhmmmm
By Kyuu on 4/29/2013 6:55:40 PM , Rating: 2
"If the canadian government wants to levy a canadian dollar tax on coins that get converted into canadian dollars, that's fair.

However taxing a transaction made in another currency, and making said tax payable only through first converting the currency, transferring it to a bank, waiting several days for the transaction to confirm, and then submitting said tax through some surely byzantine paperwork maze is just ridiculous."

Er... it *is* only taxable if bitcoins are converted into Canadian Dollars. Unless I completely misunderstood the article, bitcoins can't be taxed unless and until they exchanged for real currency.

Besides, how in the world would the Canadian Revenue Agency even know you had bitcoins until you converted it?


RE: hhmmmm
By lolmuly on 4/29/2013 8:20:52 PM , Rating: 2
Maybe I'm reading to far into this:
quote:
These rules mandate taxes on bartered goods


I presume that if a tax is collected for bartering money for bitcoins, the tax would also apply to bitcoins bartered for other goods/services


RE: hhmmmm
By Flunk on 4/30/2013 2:16:01 PM , Rating: 2
That is correct, it also applies to transactions in foreign currency. The converted Canadian dollar equivalent on the day of the transaction is used to calculate the taxes.


RE: hhmmmm
By GTVic on 4/29/2013 8:15:40 PM , Rating: 1
Not sure about the usa but up here we capitalize the name of our country.


RE: hhmmmm
By phxfreddy on 4/30/2013 9:55:35 AM , Rating: 1
See what you liberals bring us? You make life un-fun. You advocate governments involvement in even the microscopic.


RE: hhmmmm
By Flunk on 4/30/2013 2:18:38 PM , Rating: 2
You mean the kind that consistently apply laws? I'm sorry that there aren't the loopholes you're used to.


RE: hhmmmm
By ppardee on 5/3/2013 2:09:08 PM , Rating: 2
Yeah, liberals are totally about consistently applying laws. Tim Geithner cheated on his taxes and was made the treasury secretary, Timmy Public cheats on his taxes and gets hounded by the IRS using tactics that would the the Gestapo pause.

Or how about how everyone (except those who donated to the DNC) has to comply with Obamacare...

Totally consistent.


Obvious
By Flunk on 4/29/2013 11:37:15 AM , Rating: 4
The fact that Bitcoin earnings are taxable is pretty obvious under the Canadian tax system. Any income, regardless of value and source is taxable. Good luck with the $10,000 or more transactions though. Very, very few people are making that kind of money on Bitcoins.

This article is written as if this is a new thing and that confuses the issue. CRA is just announcing that they're going to be watching out specifically for Bitcoin this year.




RE: Obvious
By Cheeseavatar on 4/29/2013 11:40:25 AM , Rating: 2
I was just about to post the same thing, you beat me to it.

Though one correction, I don't believe there is a $10000 transaction. I believe the (and please done quote me on this) tax code says anything you do to make money (professionally).

For example in Canada we do not take taxes on lotto or casino winning. But if you play poker everyday and that is your main source of income, it will be taxed.

If you have another job and play pokers on the weekend for fun than its not taxed.

There is the line.


RE: Obvious
By Flunk on 4/29/2013 11:41:37 AM , Rating: 2
You missed what I meant, there is no $10,000 minimum on transactions for them to be taxable. CRA announced that they will be looking for transactions higher than $10,000.


RE: Obvious
By MadMan007 on 4/29/2013 12:07:51 PM , Rating: 2
Did they? I don't see that in the article or in the linked CRA law. The dollar amounts mentioned toward the end of the article were examples by a bitcoin user.


RE: Obvious
By Flunk on 4/30/2013 2:21:05 PM , Rating: 2
True, I forgot that you have to check the sources on anything you read on this website.


RE: Obvious
By Director12 on 4/29/13, Rating: 0
RE: Obvious
By Kyuu on 4/29/2013 6:52:11 PM , Rating: 2
Nothing funny about it. Paying taxes is not analogous to paying money to a street gang.

Not to mention, since when does anyone hand over tax money "with hardly a grumble"? Taxes are one of the things most grumbled about by everyone everywhere.


lol ok
By BRB29 on 4/29/2013 11:01:56 AM , Rating: 2
So now all those tax dodgers will just make a bank account in another country. Now Canadian banks actually have less reserves to work with lol.




RE: lol ok
By Makaveli on 4/29/2013 11:31:15 AM , Rating: 2
With all the recent reports of wealthy Canadian not paying taxes do to offshore accounts.

I would think this is a higher priority then taxing bit coin earns which would be a drop in the bucket compared to other issue.


RE: lol ok
By DanNeely on 4/29/2013 11:47:51 AM , Rating: 3
International banking secrecy is in retreat globally. The US has been using the threat of a ban-hammer for access to the us financial system against anyone who doesn't cooperate to roll back layers of tax avoidance and money laundering cloaking globally. Sketchy offshores will probably continue in some form for a while; but Austria's becoming increasingly isolated among first world nations in its rearguard fight to protect financial anonymity. (Guaranteed in their constitution, but expected to be breached following an election later this year.)

http://www.economist.com/news/europe/21576410-bank...


"Barter tax"?
By vailr on 4/29/2013 1:27:24 PM , Rating: 2
Re: "These rules mandate taxes on bartered goods, and Bitcoins are no exception." So: if you're a Canadian and you trade a $10,000 boat (or $10,000 in Bitcoins) for someone's $10,000 car, are you supposed to pay sort of a "barter tax" sales tax?




RE: "Barter tax"?
By stickman555 on 4/29/2013 6:39:28 PM , Rating: 2
There would be no income or capital gain on that transaction. I believe the idea is if you trade your boat (with a value of $10,000) for bitcoins, then sell those bitcoins to obtain a car valued at say $15,000, you would pay income tax on the $5000 difference


Just one problem
By Hieyeck on 4/29/2013 1:17:45 PM , Rating: 2
The Bank of Canada won't do business with bitcoin: http://business.financialpost.com/2013/04/27/bitco...




Tax deductions!!!
By Denithor on 4/30/2013 9:47:47 AM , Rating: 2
You guys are totally missing the advantage here: tax deductions. If they're going to tax you on the bitcoins you earn, you should be able to write off your computer system + portion of electricity cost as business expenses.

Simply set up a small business (LLC in the US, not sure how handled in Canada), purchase the equipment and start cranking out bitcoins. Pay the tax on bitcoins but claim the equipment as a deduction against the profit from the coins.




No problems here...
By foxalopex on 4/30/2013 2:58:37 PM , Rating: 2
Hey I'm Canadian and to be honest I have no issues at all with paying for taxes. I've had the benefit of using free healthcare and various other benefits that being a Canadian entails. Maybe the government could use tax money more efficiently but otherwise it isn't a bad idea.

I imagine revenue Canada is concerned about the huge windfall people may have made speculating with bitcoins. After all if you suddenly magically gain thousands of dollars the government will want to tax that as income. This has always been the case. Another way to see this is if you invest money in something and you get this massive return when you convert it back into CDN, that's a profit. Granted you could theoretically hide the money under your mattress which isn't safe and if you ever got busted you'd be in trouble. (Any large unexplained purchase would flag a warning too.)

Personally if I had made thousands or even millions in bitcoins by essentially speculating. (Which means some poor saps on the other end got completely screwed over.) I think my conscience might be a little clearer giving some away as taxes which would hopefully benefit others.

As for purely bitcoin to bitcoin transactions, well the government can't track those easily. I doubt you can make a huge amount of money anyhow in legal trade unless you're in the drug trade in which case you don't want to get discovered anyhow. I doubt the CRA is concerned about actual bitcoin transactions unless they involve huge amounts.




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