When we first wrote about bitcoin as a cryptocurrency three and a half years ago it was running at $20,000 per unit. That was substantially higher than the initial trading values of $1,000-$10,000 but still a volatile commodity. Approximately half of the 21 million cap on bitcoins to be issued had then been released but now 18 million are in play.
Proving the volatility point, it reached $65,000 in April 2021, then down to less than $30,000 on June 22 and back up to $34,450 by the end of June. This is not a trading or investment game for the faint of heart.
The pandemic may have had a role to play in its increased use as many retailers have shunned cash in favour of electronic transactions, credit and debit cards, E-transfers and transactions through services such as PayPal.
At least 60 governments are now seriously considering issuing their own cryptocurrency, including Canada, which is studying the launch of a digital loonie.
The Canada Revenue Agency sees cryptocurrency as a commodity (not a government-issued currency) and if it is used to pay for goods and services it is treated as a barter transaction.
Simply put, a currency does not exist in the transfer of goods and services but is considered a barter transaction instead that can result in the following:
- Income or expense treatment.
- The acquisition or transfer of capital, inventory or personal-use property.
All these will still result in taxable scrutiny and impact.
Essentially, that means the vendor must include in income the fair market value in Canadian dollars of the goods or services sold for cryptocurrency. Similarly, the purchaser using cryptocurrency in a business transaction must also reflect the value of the cryptocurrency used in the deal in their tax filings.
Any gain or loss arising on the disposition of the cryptocurrency can be considered business income or a capital gain/loss, which depends on the particular circumstances of the transaction.
Although cryptocurrencies are not considered Canadian regulated securities, there are capital and income taxation implications to their acquisition and active trading.
With the mighty swings in bitcoin values, admittedly some people have invested hoping for some long-term appreciation in value. Better to have bought in at $10 to $1,000 than peak prices of $65,000 or more. If one is not in the business of trading bitcoin but hoping for his or her ship to come in, any success will be treated as a capital gain. If the taxpayer is in the business of trading cryptocurrency (and CRA will make the determination and not the trader) then gains will be treated as income.
GST/HST, according to CRA, also applies to cryptocurrency transactions. The vendor must collect and remit HST/GST on the transaction if it is commercial in nature.
Grant Diamond is a tax analyst in Saskatoon, SK., with FBC, a company that specializes in farm tax. Contact: email@example.com or 800-265-1002.