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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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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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