Anyone who pays attention to the news will probably have heard of Bitcoin, and its recent meteoric rise in value. In January 2011, the trading value of the virtual currency or “cryptocurrency” was as little as $.30 per unit. By mid-December last year, it reached nearly $20,000 per unit!
“Investors should be aware that in addition to the typical volatility you can expect with a high-risk investment, you need to think about the tax consequences and other risky considerations,” advises Sharlane Bailey, Owner of Canwest Accounting, which has offices in Victoria and the West Shore (Langford).
Investors who are fans of virtual currencies often like them because they are not tied to any issuing country or bank. They offer anonymous transactions – and that has big disadvantages as well as advantages. Bitcoin’s main use is for purchasing goods and services online, and the transaction happens directly between the buyer and the seller. No financial institution stands in the middle to leave a paper trail for you or the individual at the other end of the transaction. That makes it hard to prove that any money has changed hands.
For now, let’s suppose that you have an honest business transaction using Bitcoin. According to the Canada Revenue Agency (CRA), “Where digital currency is used to pay for goods or services, the rules for 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. For example, paying for movies with digital currency is a barter transaction. The value of the movies purchased using digital currency must be included in the seller’s income for tax purposes. The amount to be included would be the value of the movies in Canadian dollars.”
As for taxes, like any investment, if you buy Bitcoin and it has increased in value when you sell it, you will need to declare capital gains on your taxes and pay the tax to the CRA. Likewise, if you buy at the height of the market and sell lower, you must declare your losses.
Think of Bitcoin as you would any currency that isn’t Canadian dollars. All the same tax rules apply as if you were doing business in US dollars, Euros or Yen. Rest assured, the team at Canwest Accounting is very familiar with working with other currencies and can assist you with this as tax season rolls around.
DISCLAIMER
The suggestions and advice provided by Canwest Accounting should not be relied upon in place of professional advice. You are responsible for checking the accuracy of relevant facts and opinions provided.
