# Bitcoin and taxes



## tavogl (Oct 1, 2014)

Hi, so earlier this year I bought some bitcoins, value has gone up quite a bit and I am wondering about taxes in this situation? do I pay taxes on it? how do I claim it? I haven't cashed out anything yet but I wan't to be ready whenever I decide to do so.

Thanks!


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## james4beach (Nov 15, 2012)

If you've sold and closed your position, you've got a capital gain that (to the best of my knowledge) should be reported as a capital gain, I presume the same way as any other security on Schedule 3.

If I were in your position I'd play it safe and report the capital gain. US tax authorities have acquired all records for Coinbase and are going to start going after people who have failed to report capital gains. Perhaps they will pass on records to Canadian authorities as well.

If you happen to be a US person in any way (citizen, green card holder, snowbird who has exceeded substantial presence test) then be especially careful because the US is absolutely going to nail bitcoin tax evaders.


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## Eclectic12 (Oct 20, 2010)

Based on CRA's response to the CBC documented here ... http://www.cbc.ca/news/business/bitcoins-aren-t-tax-exempt-revenue-canada-says-1.1395075, there are a couple of questions.

First one is whether Bitcoin was used for goods/services or trading for profit. 

If used for goods/services, then the barter rules apply.
http://www.taxtips.ca/personaltax/barter.htm


If traded for profit, the second question is whether it is a capital gain or income.
http://www.taxtips.ca/personaltax/investing/taxtreatment/capitalorincome.htm

If a capital gain, then like james ... I believe would be schedule 3.
If it is business income ... then income.


Here is a bit more thorough discussion ... though it seems to have the built in assumption of a capital gain where the first link has CRA indicating bitcoin could be a capital gain or income.


Cheers


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## Eclectic12 (Oct 20, 2010)

james4beach said:


> If you've sold and closed your position ...


If you mean by "closed", selling all bitcoins one owns ... why would this matter?

Selling 100 BCE shares of 800 shares owned for cash results in a capital gain or income, regardless of the remaining portion.
Doesn't selling say 100 gold coins of 1,000 owned work the same way? 


Or have I misunderstood something?

Cheers


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## twa2w (Mar 5, 2016)

If you haven't sold any then no taxes due. When you do sell some or all, you will have to declare a gain. This will be based on sale price less average cost. Similiar to a stock.

I assume you are buying and selling these in your personal name and are not doing so in a business, or using them to purchase goods.

I am not sure if CRA really has had enough experience with these that they have made any rulings with respect to unusually cases or people making exceptional profits.ie if one traded in and out frequently and make a living off it would CRA take a different position like they do with stocks or with TFSA high frequency traders.

Otherwise the links that eclectic posted above would be applicable to 99.9999% of cases.


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## james4beach (Nov 15, 2012)

Eclectic12 said:


> If you mean by "closed", selling all bitcoins one owns ... why would this matter?


I stated that poorly, I meant if any have been sold. I was trying to say that if you are just seeing an unrealized paper gain, there is nothing to report.


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## tavogl (Oct 1, 2014)

This answers my question. Thank you all!


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## gardner (Feb 13, 2014)

Bitcoins are considered foreign property for T1135 purposes. If you have bitcoin holdings that COST more than $100K, then the CRAs view is that a T1135 is needed. If the foreign property is acquired as inheritance or gift or similar, then the FMV at time of acquisition is the deemed cost. Presumably if you "mined" the coins yourself, then the FMV at the time they were mined would be the T1135 cost.


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## tavogl (Oct 1, 2014)

gardner said:


> Bitcoins are considered foreign property for T1135 purposes. If you have bitcoin holdings that COST more than $100K, then the CRAs view is that a T1135 is needed. If the foreign property is acquired as inheritance or gift or similar, then the FMV at time of acquisition is the deemed cost. Presumably if you "mined" the coins yourself, then the FMV at the time they were mined would be the T1135 cost.


Hey Gardner, I currently mine bitcoins and also bought some, this seems a bit complicated for my knowledge, I think I will need an accountant for this one, do regular accountants have this kind of knowledge? I have a small portion of bitcoins not more than 100k for sure, but it almost doubled its value from when I purchased them.


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## OnlyMyOpinion (Sep 1, 2013)

tavogl said:


> ... I currently mine bitcoins and also bought some...


You are running a business then. Not as simple as capital gains.


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## james4beach (Nov 15, 2012)

gardner said:


> Bitcoins are considered foreign property for T1135 purposes. If you have bitcoin holdings that COST more than $100K, then the CRAs view is that a T1135 is needed. If the foreign property is acquired as inheritance or gift or similar, then the FMV at time of acquisition is the deemed cost. Presumably if you "mined" the coins yourself, then the FMV at the time they were mined would be the T1135 cost.


I didn't know that -- is there some release that describes this? I don't understand why it's a foreign holding if you hold it in your own wallet on your own premises.

Ignoring the OP's "running a business" situation: what if you have a smaller bitcoin holding. The value would be too low for the T1135 threshold, but do you still report the capital gain/loss on Schedule 3?


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## tavogl (Oct 1, 2014)

OnlyMyOpinion said:


> You are running a business then. Not as simple as capital gains.


What do you mean by that? I mine with my gaming computer while it's not being used, pumps 10 bucks a day in bitcoins... how is that a business? it's not like I have a bitcoin mining farm with 100 gpus running.


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## twa2w (Mar 5, 2016)

T1135 as noted above refers to cost of the bitcoins. Of course if they are mined, I assume the cost is zero. 
If bitcoin is being treated as foreign, it would be no different than holding US cash. It is considered foreign property and sales would result in capital gains even if you held US cash under your mattress in downtown Toronto.

Again whether farming of bit coins is considered income as opposed to capital gains is one of those questions that the answer is not known yet AFAIK.


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## OnlyMyOpinion (Sep 1, 2013)

tavogl said:


> What do you mean by that? I mine with my gaming computer while it's not being used, pumps 10 bucks a day in bitcoins... how is that a business? it's not like I have a bitcoin mining farm with 100 gpus running.


Not a business, fair enough. So you just claim the ~$3600/yr as other income?


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## tavogl (Oct 1, 2014)

twa2w said:


> T1135 as noted above refers to cost of the bitcoins. Of course if they are mined, I assume the cost is zero.
> If bitcoin is being treated as foreign, it would be no different than holding US cash. It is considered foreign property and sales would result in capital gains even if you held US cash under your mattress in downtown Toronto.
> 
> Again whether farming of bit coins is considered income as opposed to capital gains is one of those questions that the answer is not known yet AFAIK.


What's taxed more? income or capital gains?


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## tavogl (Oct 1, 2014)

OnlyMyOpinion said:


> Not a business, fair enough. So you just claim the ~$3600/yr as other income?


Honestly, I don't know yet... it's a very confusing topic but I appreciate your input it's good to hear other peoples opinions.


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## Eclectic12 (Oct 20, 2010)

tavogl said:


> What's taxed more? income or capital gains?


??? ... income is taxed more. 
Using Ontario as an example, at $50K, the next $ earned as income is taxed at 29.65% while the next $ earned as capital gains is taxed at 14.83%. 
http://www.taxtips.ca/taxrates/on.htm

Though income does allow one to deduct losses from other income while a capital loss can only be deducted from capital gains.
http://www.taxtips.ca/personaltax/investing/taxtreatment/capitalorincome.htm

Here is an article reviewing the CRA technical bulletin on BitCoin.
https://blog.xenaccounting.com/canada-revenue-agency-falls-short-bitcoin-mining-tax-interpretation


Cheers


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## gardner (Feb 13, 2014)

Here is one of many articles discussing the CRA's interpretation vis-a-vis T1135:

http://agtax.ca/cra/bitcoin-specified-foreign-property


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## gardner (Feb 13, 2014)

twa2w said:


> Of course if they are mined, I assume the cost is zero.


My guess is that the CRA would regard the FMV at the time of mining as taxable income and the value for T1135 purposes is the FMV at the time also.


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## gardner (Feb 13, 2014)

twa2w said:


> If bitcoin is being treated as foreign, it would be no different than holding US cash. It is considered foreign property and sales would result in capital gains even if you held US cash under your mattress in downtown Toronto.


With respect to the currency gain, I agree. But as regards T1135 reporting it makes a big difference WHERE you hold them. Having US$ under your mattress in Toronto is NOT foreign holdings for T1135, but having $100K in Canadian $50s (or gold bars or whatever) under your mattress in your apartment in Florida would put you in T1135 territory.

The interpretations as to whether bitcoins are automatically foreign, or might be domestic holdings for T1135 reporting seem to vary at least as far as my Google-fu takes me. If you put them in a coin exchange incorporated outside Canada, I think it's pretty clear. I suppose the CRAs reasoning might be that since bitcoins can move around outside the view of FINTRAC, they should be treated as foreign at all times.


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## Eclectic12 (Oct 20, 2010)

gardner said:


> My guess is that the CRA would regard the FMV at the time of mining as taxable income and the value for T1135 purposes is the FMV at the time also.


This is the guidance the IRS is said to have put out, according to the blog link at the end of post #17.

The blogger is not impressed with CRA as:


> The tax interpretation starts off by saying that mining activities can either be be classified as a hobby or as a commercial activity. They point to case law in regards to how one could make this determination. It is a question of fact and numerous factors are considered, which I won’t go into detail here ...
> 
> The CRA says that if your bitcoin mining activities are considered to be a commercial activity, then you need to value your bitcoins at year-end using an accepted inventory valuation method in order to compute your income for tax purposes ...
> 
> ...



Cheers


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## james4beach (Nov 15, 2012)

gardner said:


> Here is one of many articles discussing the CRA's interpretation vis-a-vis T1135:
> 
> http://agtax.ca/cra/bitcoin-specified-foreign-property


Says: "The CRA concluded that, digital currency would be funds or intangible property, and would be specified foreign property if situated, deposited or held outside Canada and not used or held exclusively in the course of carrying on an active business."

So it says, that's foreign property *if held outside Canada*. However if you simply purchase bitcoin from a US exchange and then move the coins to your wallet situated in Canada -- for example onto a hardware token or paper printout (which you really should do for safety) that would no longer be foreign property and does not have to be reported on T1135.

Also keep in mind the capital loss possibility, so if going forward we have big losses in bitcoins, that will reduce our other capital gains or can carry forward indefinitely to reduce taxes.


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## tavogl (Oct 1, 2014)

wow alot of good information, thank you guys, I will continue reading all the links provided. Hopefully mining with my own personal computer can be classified as a hobbie as it doesnt make much money, it uses two GPU's each worth 1k, that's 2k ONLY in both gpus which are the components used for mining, but when taking ito consideration all components you're looking at 4k.Making 5 bucks a day is not much, sometimes it's more, sometimes it's less, I also use this computer for watching movies, playing games etc and I turn the miner off when doing this, AND when you take into consideration hydro costs, it is really a hobby more than a "business". Unless of course you build a mining rig and dedicate to this full time and fill your whole house with super efficient gpus or Antminers MADE for mining only, that's another story.


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## sags (May 15, 2010)

People not remitting taxes is one of the reasons I don't think bitcoins will be around long.

Any digital currency will have to be based somewhere that records and declares all transactions. It will be a very centralized and controlled system.


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## nathan79 (Feb 21, 2011)

sags said:


> People not remitting taxes is one of the reasons I don't think bitcoins will be around long.
> 
> Any digital currency will have to be based somewhere that records and declares all transactions. It will be a very centralized and controlled system.


You would have to ask how widespread that evasion is, and what kind of amounts we're talking about. We've always had an honour system when it comes to reporting small amounts of taxable income. Anyone not declaring large amounts is playing with fire, but again you have to wonder how widespread that is.

But overall, Canada is a pretty small piece of the global Bitcoin market cap, so I think that attempting to control and regulate it would probably cost far more than it would be worth.


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## twa2w (Mar 5, 2016)

gardner said:


> With respect to the currency gain, I agree. But as regards T1135 reporting it makes a big difference WHERE you hold them. Having US$ under your mattress in Toronto is NOT foreign holdings for T1135, but having $100K in Canadian $50s (or gold bars or whatever) under your mattress in your apartment in Florida would put you in T1135 territory.
> 
> The interpretations as to whether bitcoins are automatically foreign, or might be domestic holdings for T1135 reporting seem to vary at least as far as my Google-fu takes me. If you put them in a coin exchange incorporated outside Canada, I think it's pretty clear. I suppose the CRAs reasoning might be that since bitcoins can move around outside the view of FINTRAC, they should be treated as foreign at all times.


I would normally agree with you on the US cash under your mattress in Toronto, but was told by an accountant that if it was in a Canadian bank account, it would not be foreign property, but held in cash was a gray area and should be reported.
He felt the 100k Cdn cash under your mattress in Florida is ok not to report if I remember what he said correctly.( kind of a Grey area as it technically doesn't fit the categories) Ie not a foreign bank account - ( foreign property for personal use and enjoyment perhaps ;-)) 
I agree the gold ( if acb is 100+) under your mattress or if the 100 grand is in a bank account has to go on the form.
His philosophy was if any doubt, report it. The penalties are not worth it it CRA rules against you and you cannot argue ignorance.
Edit. Obviously cash is a grey area and one could go around in circles debating this. We will have to wait and see how CRA rules on this if at all. . For what its worth, folks with 100,000 in cash are likely not the reporting type:-S 

In overall terms of bitcoin, I think it is going to be a wait and see how CRA interprets this long term. I can see their position changing depending on rulings from tax court or if evidence of abuse.


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## james4beach (Nov 15, 2012)

twa2w said:


> I agree the gold ( if acb is 100+) under your mattress or if the 100 grand is in a bank account has to go on the form.


Gold / precious metals only have to be reported if held outside Canada:
http://www.advisor.ca/tax/tax-news/understanding-the-new-t1135-151683

I think if the gold bars are under your mattress, in Canada, there is nothing to report.


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## can_man (Nov 23, 2017)

What happens if I bought Bitcoin at $10000 x2 to HODL and the following week bought another one at $12000 but traded it right away for altcoins? How will taxation work? Would taxation be applied to the whole pool of Bitcoins or just that specific Bitcoin in time?

How about for other commodities like gold, how does it work?


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## gardner (Feb 13, 2014)

If Bitcoin and some altcoin are different types of assets then the sale of the Bitcoin would trigger a capital gain/loss event. Same as if you sold GBP and bought CHF. The difference in value of the GBP from when you acquired it to when you sell it is a currency loss/gain. The cost of the CHF is the new ACB going forward.

For PMs, if you sold platinum bars and bought gold ones, that would be a capital event for sure. If you sold GLD and bought Sprotts gold fund (both of which are gold only), I'm not sure how the CRA would look at it. You *might* be able to convince them that there was not a capital event, but my guess is that the easiest path would be to treat it as one.

EDIT: on second thought, a sell GLD and buy Sprott gold fund exchange would be covered by the superficial loss rules: a loss could be carried forward into the ACB of the new Sprott fund, but a gain would be taxed immediately.


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## can_man (Nov 23, 2017)

gardner said:


> If Bitcoin and some altcoin are different types of assets then the sale of the Bitcoin would trigger a capital gain/loss event. Same as if you sold GBP and bought CHF. The difference in value of the GBP from when you acquired it to when you sell it is a currency loss/gain. The cost of the CHF is the new ACB going forward.
> 
> For PMs, if you sold platinum bars and bought gold ones, that would be a capital event for sure. If you sold GLD and bought Sprotts gold fund (both of which are gold only), I'm not sure how the CRA would look at it. You *might* be able to convince them that there was not a capital event, but my guess is that the easiest path would be to treat it as one.
> 
> EDIT: on second thought, a sell GLD and buy Sprott gold fund exchange would be covered by the superficial loss rules: a loss could be carried forward into the ACB of the new Sprott fund, but a gain would be taxed immediately.


So are Bitcoins and other cryptocurrencies separate asset class/types? Anyone else want to pitch in?


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## sags (May 15, 2010)

No they aren't asset classes. The CRA can and will tax them according to how the revenue was earned by them.


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## tavogl (Oct 1, 2014)

What about online services where you lend bitcoin and they pay you a interest? let's say you lend them 1 bitcoin TODAY, which is worth 25.000 CAD$, they lock the loan for 300 days. They pay YOU interest on the 25k that the bitcoin is worth today, for the 300 days, and will give you back at the end of the 300 days the 25k, not the 1 bitcoin, it does not matter if the bitcoin goes up or down. Let's say for the 300 days you make 30% profit on the 25k. This get's even more complicated I assume since you lent a bitcoin, but they will refund 25k at the end and will pay you interest in FIAT currency? how would taxes work in this scenario?


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