Tax authorities around the world continue to wrestle with the tax issues arising from the use and sale of Bitcoin currency. Sweden recently announced that it will treat Bitcoin as an asset, and Finland has stated that it will treat Bitcoin as a commodity. China has placed restrictions on the use of Bitcoin. Generally, the price fluctuations and uncertainties around the use and sale of Bitcoins seemed to have generated more questions than answers.
In Canada, the use of Bitcoin currency appears to be gaining popularity - Bitcoin ATMs have popped up in several cities, and various retailers and even some charities are accepting Bitcoins for payments or donations. However, the Canadian government apparently does not consider it a currency. The Canadian tax implications of Bitcoin transactions have been considered by the CRA and tax professionals, and now the CRA has published some additional guidance on the subject.
In CRA Document No. 2013-0514701I7 “Bitcoins” (December 23, 2013), the CRA summarized its views on how certain transactions involving the use or sale of Bitcoins may be taxed under the Income Tax Act and Excise Tax Act.
Buying and Selling Goods or Services in Exchange for Bitcoins
The CRA stated that the use of Bitcoins to purchase goods or services would be treated as a form of barter transaction (see, for example, Interpretation Bulletin IT-490 “Barter Transactions” (July 5, 1992)). The CRA’s view is that each party to a barter transaction has received something that is equal to the value of whatever is given up. For Canadian tax purposes, if a business sells goods or services in exchange for Bitcoins, that business must report its income from the transaction in Canadian dollars (i.e., the fair market value of the Bitcoins at the time of the sale). GST/HST would be applicable on the fair market value of the Bitcoins that were used to pay for the goods or services.
Donation of Bitcoins
The CRA stated that, if Bitcoins are transferred to a qualified donee, the fair market value of the Bitcoins at the time of the donation must be used in determining the value of the gift for tax purposes (see also CRA Pamphlet P113 “Gifts and Income Tax”). The determination of the fair market value is a question of fact.
Buying and Selling Bitcoins
The CRA stated that the trading or sale of Bitcoins like a commodity (i.e., speculating on the changes in the value of Bitcoins) may result in a gain or loss on account of income or capital. This determination can only be made on a case-by-case basis and on the specifics facts of each situation (see, for example, Interpretation Bulletin IT-479R “Transactions in Securities” (February 29, 1984)). Generally, the income tax consequences relating to the tax treatment of gains or losses arising from the purchase and sale of Bitcoins would be the same as for transactions involving other types of commodities.