Increasingly popular virtual currencies like Bitcoin are garnering headlines.
It is an electronic currency independent of central banks and currently minimally regulated. This currency allows you to make payments and trades at no charge, anywhere on the planet.
At the legal level, the Federal Government has recently issued this statement: http://bit.ly/1djMMIh
In essence, the tax department advises us that the tax rules applying to barter should also be understood and applied to Bitcoin trades. For instance, if a person exchanges Bitcoins to purchase an clothing item, the seller must include and file in their income statement the equivalent price at fair market value of the item sold. If the piece of clothing is worth $20, then it becomes a taxable income of $20 (even if paid in virtual currency).
In England, Her Majesty’s Inland Revenue has recently issued a more in-depth guideline (http://bit.ly/1eXBfZe). Considering that our public right, here in Canada, is largely based on British law, it would be very interesting to follow the evolution of decisions rendered by UK courts.
As for the American IRS, it also issued a directive in March, 2014. http://bit.ly/1pcFx6D
According to early analyses by observers of the finance and tax world in the US, it seems the IRS directive would be extremely difficult to implement in daily affairs. The American tax department chose to treat the “Bitcoin” as property, rather than as a currency. Therefore, each transaction made with Bitcoins, whether to purchase a cup of coffee or a condo, will have to be calculated by the purchaser as a capital gain between the purchase price of the Bitcoins and their value at the time of the transaction…
Let’s hope that the Canada Revenue Agency will keep to a much simpler and more functional approach than the one put forward by the IRS.
One last critical element to watch: The recent federal budget announced changes to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act which aim at further restricting the exchange of crypto currencies, such as Bitcoins. These measures would notably be concerned with the purchase and sale of crypto currencies. Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) is the responsible agency.
Our law firm offers legal and tax services to our clients who are seeking expertise to comply with their obligations concerning the trade of virtual currency.
On an experimental basis, our firm currently accepts Bitcoin payments for our legal services.
Louis Sirois LL.B