How does CRA tax Bitcoins?

Digital currencies like Bitcoin are becoming popular in Canada. In fact, Vancouver-based Bitcoiniacs and Nevada, U.S.-based Robocoin recently launched the world’s first Bitcoin ATM in Vancouver.

And it seems CRA took note. In November 2013, the agency issued a fact sheet reminding taxpayers of reporting requirements when using digital currencies, often called cryptocurrency. Here’s how it works.

We’re required to calculate and report taxes in Canadian dollars. Where business or investments have been transacted in other currencies, there must be a conversion back into Canadian dollars. With traditional currencies, there are published exchange rates with other central banks to facilitate this process. Though there are online exchanges that will quote digital currencies in Canadian dollars, these are not directly recognized for tax purposes.

Instead, CRA considers these types of transactions to fall under the barter rules, which in its simplest form is the exchange of one commodity for another without using money. The value of the exchange is fair market value in Canadian dollars, on the same basis as if cash was the consideration. Apart from being used in exchange for goods and services, digital currencies can also be bought and sold as commodities.

Depending on who is involved and how the transaction is carried out, the tax treatment may be:

• current income or expenses; • acquisition or disposition of capital property; • eligible capital property (goodwill); • personal-use property; or • inventory.