Introduction on Bitcoin

Bitcoin is currently the most notable digital currency. Although Bitcoins only exists in a digital form, it still provides the normal functions of other types of currency. However, unlike other common currencies such as the US Dollar, Bitcoin is not come from a Central Bank or Government and also does not face regulation from such an agency.

People use Bitcoins for two major purposes: trading, and paying for goods and services. This article focuses on the tax implications of using Bitcoins for both purposes.

Tax Implication for Trading Bitcoin

Investors have concerns towards Bitcoin due to worries about the stability of the currency. The value of Bitcoin is up to $USD 7,200 in November 2017 from $USD 0.75 in April 2011. This means a $100 investment in Bitcoin in April 2011 is now worth more than $960,000. This raises the question for the Canada Revenue Agency: how should we properly calculate the tax from Trading Bitcoins?

According to the Canada Revenue Agency tax code, digital currencies like Bitcoins are treated the same as other common currencies. This indicates that any Investment Gain/Loss from trading Bitcoins are classified as Capital Gain/Loss. Therefore, only 50% of your investment gain from trading Bitcoins will be taxable. So when you sell your stock in Bitcoin currency, you will calculate tax on half of the difference between your purchase price and selling price of the Bitcoin. If that amount is negative because the value of Bitcoin went down, any losses can be used as the tax credit against other income.

Using Bitcoin as Normal Currency in Day-to-day Transactions

You can use Bitcoins in day-to-day transactions, such as buying groceries. Retailers are starting to accept bitcoins as an innovative payment option. If you use your bitcoins to pay for goods and services, stores and service providers will calculate the price using the exchange rate on the payment date. One exception to note is that the Canada Revenue Agency does not accept Bitcoin for tax payments.

Receiving Salary in the form of Bitcoin

Another rising trend is employers offering employees the options of receiving salaries in either local currencies or Bitcoins. If an employee opts to receive their salary in the form of Bitcoins, then how do we calculate the income taxes?

The logic is simple, firstly convert Bitcoin you receive into your local currency using the exchange rate and follow the normal routine to calculate applicable income taxes. However, the core question here is which exchange rate do you use?

Currently, the most common method is using the exchange rate from the date you received your salary payment. However, tax experts are also questioning the accuracy of this method as employees generate salary income over the month, therefore it is more reasonable to use monthly average exchange rate instead of spot rate on the payment date. Tax experts promote a monthly average since if the value of Bitcoin drops significantly at the date of salary payment, then the employee will receive less than they may have earned during the overall month.

This website provides general information on various accounting and tax issues. The information is not intended to constitute professional advice and may not be appropriate for a specific individual. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice. Neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information herein. Readers should always consult with their professional advisor with respect to their particular situation.

Andrew Chen
October 10, 2017

SDG Team

Sami Ghaith CPA, CGA, MBA, is the founder of SDG Accountant and specializes in tax and business consulting services for Real Estate, Tech, Retail and Service Industries. Sami is licensed as a Chartered Professional Accountant of Ontario.