Principal Issues
Position
Cryptocurrencies are not considered legal tender issued by a government and are generally treated as commodities for purposes of the Income Tax Act (the “Act”).
Transactions involving cryptocurrencies are treated as barter transactions where goods or services are exchanged.
Gains or losses arising from the disposition of cryptocurrencies may be treated as either income or capital, depending on the facts.
Reasons
Cryptocurrencies, such as Bitcoins, are not considered currency for purposes of the Act and are generally treated as commodities.
Where cryptocurrencies are used to purchase goods or services, the transaction is considered a barter transaction. Under such transactions, the value of the goods or services exchanged must be determined in Canadian dollars.
In accordance with sections 3 and 9 of the Act, where a taxpayer receives consideration in the form of cryptocurrency, the amount to be included in income is the fair market value of the goods or services provided.
Where a business accepts cryptocurrency as payment, it must report income based on the fair market value of the cryptocurrency at the time of the transaction, expressed in Canadian dollars.
Where cryptocurrencies are acquired and disposed of for investment or speculative purposes, any resulting gain or loss may be on account of income or capital. The determination of whether such gains or losses are income or capital in nature is a question of fact and depends on the taxpayer’s particular circumstances.
Where a transaction is on capital account, a capital gain arises where the proceeds of disposition exceed the adjusted cost base and any related expenses. One-half of the capital gain is included in income pursuant to section 38 of the Act.
Cryptocurrencies may also be transferred as a gift. In such cases, the fair market value of the cryptocurrency at the time of transfer is relevant in determining the tax consequences of the transaction.
The determination of fair market value is a question of fact in all circumstances.
Limitations
The tax treatment of transactions involving cryptocurrencies depends on the specific facts and circumstances of each case.
Information provided through CRA technical interpretations and Dedicated Telephone Service correspondence does not constitute a binding determination of tax treatment.
Binding confirmation may only be obtained through an advance income tax ruling issued in accordance with CRA administrative procedures.
