Overview
This ruling examines the income tax and GST/HST implications of transactions involving Bitcoins and other virtual currencies.
The Canada Revenue Agency clarifies how virtual currency is treated when used:
To buy or sell goods or services
As a method of payment for business income
As a donation to a qualified donee
As an investment or commodity trade
Under Canadian tax law, Bitcoin is not legal tender. It is treated as a commodity, and transactions involving it are considered barter transactions under the Income Tax Act.
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. Buying & Selling Goods or Services Using Bitcoin
Income Tax Treatment (ITA sections 3 & 9)
Bitcoin payments are treated as barter transactions.
When a business sells goods or services and receives Bitcoin:
The business must report income equal to the fair market value (FMV) of the Bitcoin in Canadian dollars at the time of the transaction.
The transaction is treated as if cash was received for the same amount.
Example (from CRA):
A bookstore sells a $20 book for Bitcoin.
The bookstore reports $20 of business income.
GST/HST Treatment
When Bitcoin is used as consideration:
GST/HST is based on the FMV of the Bitcoin at the time of the supply.
Sellers must collect and remit GST/HST as usual.
Eligible buyers may claim ITCs.
2. Donations of Bitcoin
Income Tax Treatment
Bitcoin can be donated to a qualified donee.
The eligible amount of the gift is:
The FMV of the Bitcoin at the time of donation,
ORThe FMV of property acquired with Bitcoin (if donated instead).
FMV is a question of fact and may be subject to special rules (e.g., deemed FMV rules in gifts-in-kind).
3. Buying & Selling Bitcoins (Investing or Speculating)
Bitcoin trading is treated like trading commodities.
Capital vs. Income Treatment
The CRA determines whether a gain or loss is:
- Business income (100% taxable)
OR - Capital gain (50% taxable)
…based on the taxpayer’s facts and circumstances, such as:
- Frequency of transactions
- Intention to earn profit
- Level of organization
- Commercial activity
CRA applies criteria from Interpretation Bulletin IT-479R (securities transactions).
Example (from CRA):
- Bitcoin purchased for $100
- Sold for $500
- Gain = $400
- If capital: taxable capital gain = $200 (50% inclusion rate)
CRA’s Position on Cryptocurrency (Summary)
- Bitcoin is not government-issued currency.
- It is treated as a commodity under Canadian tax law.
- Transactions involving Bitcoin are considered barter transactions.
- FMV in Canadian dollars must be used for income reporting.
- Gains may be capital or business income depending on intent and behavior.
Relevant Income Tax Act Sections Referenced
- 3 - Computation of income
- 9 - Business income
- 38 - Capital gains
- 39 -Definitions of capital gains and losses
Disclaimer
This summary is based on a redacted CRA technical interpretation. While believed to be accurate at the time of original publication, CRA positions may change and may not represent current administrative policy. This content is provided for general information only and should not be relied upon as tax, legal, or financial 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.
