Overview
These CRA technical interpretations address:
-
Whether maintenance costs and interest expenses related to holding commodities (such as gold) are deductible or can be added to Adjusted Cost Base (ACB).
-
How taxpayers may establish the cost base of commodities when original receipts have been lost.
The rulings reaffirm CRA’s long-standing position under IT-346R and interpret key provisions of the Income Tax Act, including sections 9(1), 9(3), 40(1), 53(1), 53(2), and 54.
Key Issues Considered
- How businesses must report income when paid in Bitcoins
- Whether GST/HST must be charged on Bitcoin transactions
- How capital gains apply to Bitcoin appreciation
- Whether Bitcoin donations receive charitable tax treatment
- How Bitcoin gains/losses are classified (income vs. capital)
1. Background and Issues Raised
A. Deductibility of Interest and Maintenance Costs
A taxpayer acquired gold commodities for the purpose of eventual sale and incurred:
-
Maintenance fees (storage, custody, preservation)
-
Interest expense (borrowed money used to purchase the commodities)
The taxpayer reported the gain as capital, and CRA accepted this treatment.
The ruling was requested to confirm whether:
-
Interest and maintenance expenses can be deducted; or
-
Added to the ACB of the commodities; or
-
Used to reduce capital gains on disposition.
CRA’s analysis relied heavily on paragraph 13 of IT-346R, which deals with commodity futures and certain commodities.
B. Lost Receipts & Establishing Cost of Gold Purchases
In a separate case, a taxpayer purchased gold in the 1970s but lost all purchase receipts.
They requested help from CRA to determine their ACB for future sale.
2. CRA’s Technical Analysis
A. Income vs. Capital Treatment for Speculators
CRA reiterates:- If a taxpayer is a speculator (per IT-346R), they may choose to report gains on income account or capital account, regardless of trading frequency.
- Once chosen, the method must be used consistently.
➤ Reasonable interest and maintenance expenses may be deductible, unless denied by other sections of the Act. If reported as capital: ➤ Capital gain is calculated strictly under s.40(1) and s.54 definitions.
1. “Cost” Does not Include Maintenance or Interest
Based on jurisprudence including Queen v. Stirling and others cited in the ruling, cost means:
The price the taxpayer gave up in order to get the asset.
It does NOT include expenses incurred after the acquisition to maintain or finance the property.
Therefore:
-
Maintenance fees
-
Interest on borrowed funds used to buy commodities
cannot form part of the ACB under s.53(1) or s.53(2).
2. Not Deductible Against Capital Gains
Interest and maintenance fees are NOT:
- Outlays or expenses made “for the purpose of making the disposition” under s.40(1)(a)(i)
- Deductible from income from property under s.20(1)(c) because capital gains are not income under s.9(3)
- These costs cannot be deducted from capital gains
- They cannot be added to ACB
- They cannot be treated as disposition expenses
C. Deductibility if Reported on Income Account
If the taxpayer treats the activity as income (business or adventure in the nature of trade): ✔ Reasonable interest and maintenance expenses may be deductible under s.9(1) (because they are incurred to earn income)3. Establishing ACB When Receipts Are Lost
CRA acknowledges:
-
The taxpayer purchased approximately 230 ounces of gold
-
Receipts were lost
-
They could not recall exact purchase costs
-
The matter involved completed transactions
CRA’s position:
-
CRA will not assign a cost of $0
-
CRA is willing to accept an estimated cost
-
The taxpayer must work with their local tax services office to determine a reasonable ACB
-
CRA did not take an official technical position due to the fact-specific nature of the case
This letter confirms CRA’s practical administrative flexibility when documentation has been lost but the taxpayer can reasonably support a valuation.
Disclaimer
This summary is based on CRA technical interpretations 2010-0352971I7 and 2010-0380771M4, which may not represent current CRA positions. Information is for general guidance and not legal or tax advice.
Redaction Notice
All names, phone numbers, office locations, signatures, and confidential identifiers from the original CRA documents have been removed to protect privacy and comply with publishing guidelines.
