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Digital Currency and Taxin Canadian Government News and Updates
Do you know what the tax rules as well as the reporting requirements involved in dealing with digital currency? The CRA, with its recent news release, reminds taxpayers of the tax implications of using digital currency.
Digital currency is virtual money that can be used to buy and sell goods or services on the internet. Examples of digital currency are bitcoins. Bitcoins are controlled by central banks or any country and can be traded anonymously. These bitcoins can be bought and sold in exchange for traditional currency and can also be transferred from one person to another.
In the use of digital currency, barter transactions apply. A barter transaction occurs when any two persons agree to exchange goods or services and carry out that exchange without using legal currency. Therefore, tax rules apply. The CRA provides an example of this scenario: paying for movies using digital currency must be included in the income of the seller for tax purposes. The amount to be included would be the value of the movies in Canadian dollars.
For more information on the tax implications of barter transactions, you can click here: Interpretation Bulletin IT-490, Barter Transactions
Digital currency, as mentioned, can be bought and sold like a commodity. Therefore, any resulting gains or losses could be taxable income or capital for the taxpayer. To determine whether transactions are income or capital in nature, please click on this link: Interpretation Bulletin IT-479R, Transactions in Securities
Reporting requirements should also be of concern to anyone dealing with digital currency. Not reporting income from domestic or foreign sources is illegal and the CRA is very active in pursuing cases of non-compliance.
If you have not reported such income, you can correct your tax affairs through the Voluntary Disclosures Program. You can also consult with your KD accountant right away!