Canada Revenue Agency To Tax BitCoin Transactions

First time accepted submitter semilemon writes "The Canada Revenue Agency has started paying attention to BitCoin transactions, as it says users will have to pay tax on all transactions using the currency. From the article, "The CRA told the CBC there are two separate tax rules that apply to the electronic currency, depending on whether they are used as money to buy things or if they were merely bought and sold for speculative purposes. "Barter transaction rules apply where BitCoins are used to purchase goods or services," Canada Revenue Agency spokesman Philippe Brideau said in an email. In this situation, that means whatever you've received in exchange for your $1 worth of vegetables must be documented as a taxable gain of at least $1 somewhere. When it comes to trading BitCoins for profit, the tax man says there are tax implications there, too. "When BitCoins are bought or sold like a commodity, any resulting gains or losses could be income or capital for the taxpayer depending on the specific facts," ruled the CRA."

Comments

Kind of innevitable and entirely reasonable

[sg_oneill]

All seems reasonable to me. Our civil society is founded on the fact that since the government actually costs money, then people need to pay tax. Trying to hide money in bitcoin ought be seen as tax evasion, unless they are paying taxes on that money.

Libertarian types trying to sponge off the taxes of hard working tax payers via tax evasion need to stop being so greedy and stealing other peoples money.

Re:Kind of innevitable and entirely reasonable

[synaptik]

I haven't heard any libertarians espousing bitcoin as a means of evading taxes. I just sold mine from 2010, and I am well aware of the need to pay income tax on the net proceeds. Just like anything else.

Re:Kind of innevitable and entirely reasonable

[olip85]

Good move by the government, and it is a good thing that this is happening sooner rather than later. Yes, taxes suck, yes I want to pay lower taxes, etc, but roads and healthcare don't pay for themselves.

Re:Kind of innevitable and entirely reasonable

[gl4ss]

I'll go along with it if I can PAY my taxes in bitcoin...Until then @!#$@#$ off.

well you probably can't pay your taxes in apple shares either.

Re:Kind of innevitable and entirely reasonable

[spire3661]

Please expain to me why the government should get a cut if i transfer money from one human to another. Its insanity to expect a cut from EVERY FINANCIAL transaction. This level of taxation goes FAR BEYOND what it takes to run a nation.

Re:Kind of innevitable and entirely reasonable

[amiga3D]

Just so you know, tax avoidance is a bi-partisan thing.

http://latimesblogs.latimes.com/washington/2010/09/congress-taxes-irs.html

Re:Kind of innevitable and entirely reasonable

[Solandri]

Libertarian types trying to sponge off the taxes of hard working tax payers via tax evasion need to stop being so greedy and stealing other peoples money.

It all depends on efficiency.

- If the tax money collected by the government is spent on a program which yields a higher return (by increasing the nation's productivity) than if the money had remained in private hands, then tax evasion is stealing from other taxpayers.

- OTOH if the government is spending money on programs which aren't more efficient than private use (or are even losing money), then tax evasion actually helps the economy (in totalitarian states, it leads to black markets) and it's the government which is being greedy and stealing people's money.

There's a tendency for libertarians to pretend only the second state exists, and for big-government proponents to pretend only the first state is possible. The reality is that either state is possible. We have to be constantly vigilant to appraise the effectiveness of government programs, and not afraid to cut the ones which become wasteful. But likewise, neither should we immediately dismiss all government programs as wasteful.

Re:Kind of innevitable and entirely reasonable

[Jawnn]

This level of taxation goes FAR BEYOND what it takes to run a nation.

[citation needed]
First of all, there is precious little agreement on how much it actually takes to "run a nation", but in the case of the U.S., it is plain to even the most dim-witted that we are not collecting enough to cover that expense. Unless/until we can agree to spend less, more revenue is required. To suggest that it is excessive is to deny reality.

Re:Kind of innevitable and entirely reasonable

[AuMatar]

There's also programs that may be inefficient or cost money that society decides are worth paying for anyway. Not everything needs to be about making a profit. Those programs should still be watched to ensure that are as efficient as possible, but they shouldn't necessarily be killed. Social Security is an example of that- there's no financial gains for keeping old people alive and sheltered, but its something society decides is a good idea.

Re:Kind of innevitable and entirely reasonable

[Trepidity]

Sounds pretty silly. I moved from the USA to Denmark and things work much better here. You know why? Because the government is twice as big, not smaller. So infrastructure is actually built and maintained, healthcare coverage is universal, education is strong, the unemployed get skills retraining, etc., etc.

Re:Kind of innevitable and entirely reasonable

[ganjadude]

the issue is not "covering the expense" it is deciding which expenses need to be cut. Our economy brings in more in each year then we spent per year only a decades ago. there is no excuse that spending levels have gone up to trillion dollar deficits when we still take in more money than only a decade ago. Let me ask you something. has anything gotten better for the rising taxes and government spending? Some will argue for others against of course. I argue that we dont get nearly as much for what our government spends vs 10 years ago. Even if we got the exact same that we got 10 years ago from our tax money, there is no reason for spending to have gone up.

somewhere along the line the federal government forgot all about the 10th amendment.

Re:Kind of innevitable and entirely reasonable

[Cederic]

Income tax? Or Capital Gains tax?

I guess it depends whether you bought them or 'mined' them.

Re:Kind of innevitable and entirely reasonable

[SJHillman]

If I'm not mistaken, you're also not taxed on Apple shares until you turn them back into real-world money via dividends or selling your shares.

Re:Kind of innevitable and entirely reasonable

[roman_mir]

Because the government is twice as big, not smaller.

- you are mistaken, you don't know where you are.

Denmark has a trade surplus, not a 50 Billion / month trade deficit. Denmark has a tiny debt compared to its GNP, USA is in a hole that it can't get out of.

You are mistaken that Denmark has a larger government, Denmark has a much smaller government, insignificant by USA standard. Denmark is not fighting wars around the globe, by the way, it doesn't have about 85 or so MILLION unemployed people that could work if it weren't for a huge welfare state.

You should watch something before you come back with other comments.

Re:Kind of innevitable and entirely reasonable

[Trepidity]

It has a larger government measured by percentage of GDP: government spending equals 50% of GDP. It's true that it has lower debt, because it also has much higher taxes (around 50% of GDP as well), so it pays for its spending rather than selling bonds to pay for it.

Re:Kind of innevitable and entirely reasonable

[fastest fascist]

The title is misleading. Bitcoin transactions aren't being taxed, as far as I can tell. Sales denominated in bitcoins are subject to VAT (or similar), and government-currency-denominated gains from selling bitcoins for other currency will be taxed. Sending bitcoins from one wallet to another isn't, per se, subject to tax. As far as I can tell.

Re:Kind of innevitable and entirely reasonable

[dskoll]

So why do we need government again?

Because countries without governments tend to resemble Somalia, Afghanistan, Iraq and so on.

When a properly designed system could provide direct democracy

Right, because we all know how well e-voting works.

I think that those who favour no government and those who favour large intrusive governments should get to live in Somalia and North Korea, respectively, just to see where their extreme positions lead.

Re:Kind of innevitable and entirely reasonable

[maxwell demon]

If you don't like living under a government, you are free to move to Somalia. However I don't think you'll like the government-free life there ...

Note that Switzerland is a direct democracy, yet still has a government. Why would they have one if direct democracy made it superfluous?

And if all the work is done by robots, a government is needed more than ever, because then there will be no more economic wealth redistribution through wages.

Re:Kind of innevitable and entirely reasonable

[spyfrog]

I thought you were an democracy. So it isn't the federal government who is to blame - it is you the people that continue to vote in people who either doesn't lower spending or raises taxes to balance the budget.
Blaming it on the federal government is plainly wrong - you Americans simply wants to eat the cookie and keep it. Balancing a budget is easy - either you cut spendings or your raises taxes. Your politicians does neither and you keep voting on them so you should all take the blame.

Re:Kind of innevitable and entirely reasonable

[Anonymous Coward]

Actually you do. If you're given or are paid in Apple shares, you're taxed the value of the shares at the time you were given them. When you sell the shares, you pay additional taxes (or receive a tax credit) based on any differences in price from when you got them.

Re:Kind of innevitable and entirely reasonable

[Big Electric Cat]

As far as cap gains goes, you don't have to convert your shares into money (i.e. sell them) in order to be subjected to the tax. You would also owe it if you bartered them for something else, or if any number of other "taxable events" changing the status of the shares occurred. The rules are complicated, but basically the idea isn't "money is magically the only thing we tax", it's just "we tax it when your ownership in the property ends or changes". I'm talking about the U.S. here - I don't think Canadian law is drastically different. It's possible to tax you, say, annually on the value of changes in your property, instead of waiting for it to be disposed of in some way as we do, but that's administratively very inconvenient (not all property is easy to value), and can be pretty unfair when property has frequent large price fluctuations.

Re:Kind of innevitable and entirely reasonable

[xelah]

- If the tax money collected by the government is spent on a program which yields a higher return (by increasing the nation's productivity) than if the money had remained in private hands, then tax evasion is stealing from other taxpayers.

It isn't quite as simple as that. Suppose you're a better carpenter than me and I'm a better gardner than you. And suppose there's some carpentry I want I could do myself in 10 hours, and you could do in 8. And suppose there's some gardening you want you could do in 10 hours and I could do in 8. The logical thing - the efficient thing - is to swap tasks and do each others. We both get what we wanted with less effort. Now suppose there's a 25% or more tax - for every 8 hours work you do, you have to do another 2 or more effectively for the government. This swap is no longer in our interests, and we're better off doing the work ourselves even though its less efficient. So, added to the cost to individuals of taking away some of what they consume to provide government services, there's an additional cost caused by reduced efficiency. Considering efficiency grounds only, the public program needs to provide higher economic welfare than the amount lost to the individuals who are taxed, plus the amount used up administering the tax, plus the efficiency loss caused by the distortion of economic decision making.

Of course, as any basic economics course will tell you, this effect can also be used to increase efficiency where purely private decision making comes out with poor results. Pollution is the classic case. And its also worth noting that the same effect occurs with monopoly prices.

But there's more to an economy than being efficient. Its purpose is to promote the economic welfare of its citizens. In the political view of most people, this includes some (widely varying) amount of redistribution, too. And if you take maximum overall economic welfare as the goal (which is tricky, because adding welfare across people is rather conceptually difficult), and notice that giving a little to a poor person produces a much bigger increase in his welfare than giving a little to a rich person, the logical outcome would involve quite a lot of this redistribution.

Re:Kind of innevitable and entirely reasonable

[alexander_686]

As given in the summary, it is sales tax (if used to buy things) or capital gains tax (if mined and sold, or speculated in.) Which, I think, would be common sense. In America, at least, you can’t avoid taxes by switching to barter, script, or other currencies – it’s fair market value that drives the underlying tax code.

Re:Kind of innevitable and entirely reasonable

[alexander_686]

I'll go along with it if I can PAY my taxes in bitcoin...Until then @!#$@#$ off.

Why? I don’t know about Canada, but in most of the world, if you make profits in a foreign currency (or script, barter, etr.) it is your responsibility to convert those profits to US Dollars. Why should BitCoins be different?

Re:Kind of innevitable and entirely reasonable

[xelah]

For an economy, efficiency isn't just about doing a particular thing with fewer resources. You can also be inefficient by doing the wrong things. Think of the badly organized communist state which manufactures - very efficiently - twice as many left shoes as right. Or more plausible government that piles its country's resources in to terrorism prevention, whilst ignoring road safety.

Re:Kind of innevitable and entirely reasonable

[ScottMcD]

The government expects to get a percentage of every transfer of money from one entity (or person) to another. The person receiving the money must count it as income. This is how income tax works. Just because a person decides not to report doesn't mean the tax isn't owed. And if the amount of money is high enough the government will figure out that tax is owed and come after the person to get it.

In the case of bitcoins (or any other non-local currency) the transaction must be converted to the local currency to figure out the value of the transaction and the amount of taxes to be paid.

Re:Kind of innevitable and entirely reasonable

[CastrTroy]

Exactly. They had a crackdown on people who made money off eBay a few years back. They obviously didn't go after people who just sold a bicycle on eBay but were more concerned with those running completely undeclared businesses off of eBay, some people making over $100,000 per year. Just like they won't go after people setting up a garage sale but they will expect taxes to be paid when you're running a business, even if you run it out of your home.

Re:Kind of innevitable and entirely reasonable

[Trepidity]

Yes, it's counting all levels of government added together (international comparisons typically do, because the internal structuring differs so much between countries).

If you add up all governments in the U.S. (federal, state, county, municipal), the numbers are: taxes equal 27% of GDP, and spending equals 39% of GDP. If you add up all the levels of government in Denmark, the numbers are: taxes equal 49% of GDP, and spending equals 52% of GDP. Source: The Heritage Foundation (a conservative U.S. think-tank)

Doing a bit of digging for the U.S. federal budget, it looks like it's a little over half the total in both categories. Total 2012 federal tax receipts were $2.5 trillion, and total federal expenditures were $3.5 trillion. Since GDP was $15 trillion, that equates to 17% of GDP in federal taxation, and 23% of GDP in federal spending.

Re:Kind of innevitable and entirely reasonable

[cornjones]

[A]... government that piles its country's resources in to terrorism prevention, whilst ignoring road safety.

Oh c'mon... a cursory glance at the number of casualties from terrorism vs road accidents would show that to be just plain dumb.

at least use a more plausible example, geez!

Re:Kind of innevitable and entirely reasonable

[Chuckstar]

Why don't you lay off. Capital gains tax is a subset of income tax. So he's absolutely right.

Re:Kind of innevitable and entirely reasonable

[smash]

IF this is the case (I don't have the figures) I can tell you now that the government of Denmark spends a lot higher percentage of it's spending on PRODUCTIVE pusuits, rather than warfare and playing world police. PRODUCTIVE government spending is not a bad thing. Pissing money into the wind chasing ghosts and suppressing your population's civil rights, is.

Re:Kind of innevitable and entirely reasonable

[smash]

If you cut your military budget down to say, only 2-3 times your largest potential adversary's, and used it for defence rather than empire building, you'd probably be in surplus in no time.

Re:Kind of innevitable and entirely reasonable

[sustik]

* Institute max working per week and other rules to increase number of employees in the private sector (shrinks government, grows private sector)

Instituting maximum working hours will result in a more expensive workforce. I am not against it necessarily, but in order to prevent the country to lose in international competition, some protection mechanisms will be needed (anti-globalization). And before you say that 2 people working 20 hours can do the same as 1 in 40, answer the following as a practice question:

"If it takes 1 woman 9 months to bring a child to term, how long does it take for 9 women?"

And of course whether the 2 people sharing the salary that the one got earlier will be able to live on it, is not a foregone conclusion either.

Having said the above, I wish that working hours would be reduced to around 32 per week *everywhere*. That would allow more informed citizens and would increase civic participation, etc.

Re:Kind of innevitable and entirely reasonable

[Captain_Chaos]

Do you deny that there are people who can't take care of themselves, through no fault of their own? If so, then you are delusional. If not, then you are an asshole.

Re:Kind of innevitable and entirely reasonable

[rhodium_mir]

Payments on debt ARE government spending.

LOL

[intellitech]

And how exactly do they plan to accomplish this? Technical explanation required.

ummm... duh

[larry bagina]

Can't speak for Canada's tax laws but that's entirely consistent with US tax law. Capitol gains are taxable. Bartering is taxable. The only news is that by specifically naming bitcoin they're further legitimizing it.

Good for bitcoin

[vasanth]

good in the sense it is gaining legitimacy..

Re:Good for bitcoin

[DerekLyons]

They aren't legitimizing Bitcoins, the government is just reminding people that certain transactions create a tax liability - they don't care if the transactions are in dollars, Bitcoins, or jars of pickled hamster poop. The same rules apply to all three.

Re: Okay

[Literaphile]

That doesn't make sense. You are taxed on any gains when you sell shares of a company - does this mean that you should be able to pay your taxes with stocks?

Capital Gains

[Roger W Moore]

It is not every transaction it is just capital gains tax. If you 'mined' BitCoins then the cost was the electricity needed to generate them. If you then sell them for money (or exchange them for goods which have a value) and get more than the cost of mining them then the government taxes you on the capital gain. This is exactly the same as any currency speculation. If BitCoins want to be treated as a real currency then there real tax rules which apply.

Re:Capital Gains

[Anonymous Coward]

Most countries (states) have a "single" tax point structure. In the non-progressive states (countries) the tax is delayed until the final customer transaction. In more progressive structures the tax is based on the value added at each stage of the chain. You buy a raw component for $1.00 you get taxed on the $1.00. You added your value and sell it for $5.00 you get taxed on the $4.00 value added. This the basic structure of VAT used inn many countries.

Therefore, the product is only "taxed" once.

Already paying bitcoin taxes...

[CmpEng]

I made about $6500 in 2011 from bitcoins and my accountant advised me to treat it as I would any additional income. I suspect this is making things official in the sense that the CRA will start looking into past years to see if people haven't properly claimed it. In addition to claiming the $6500 as income I was able to write off a portion of my house utilities, mortgage, etc... in accordance with local bylaws.

Audit. Bitcoins aren't special

[raymorris]

Tax laws are enforced through audits. The government notices you have a site selling T-shirts, for example . Based on hueristics plus a random chance, they may decide to audit you. At the audit, tney examine your books, comparing what you spend versus the income you report. Maybe they notice you have a car, a 2011 Camaro. They know how much a 2011 Camaro costs, they probably see the payments on your bank statement. There had better be income reported to cover that expense. Once all of the major expenses are covered, and everything that's shown on your bank statements, and any major assets are accounted for, they know roughly what you're probably spending in cash, on small things. (People with $150,000 houses and $35,000 cars spend about $x,000 on entertainment.) It needs to all add up with the income you report.

Secondarily, someone can rat you out. Maybe ypu have a partner or employee helping you sell "Fuck Taxes" T-shirts. If things go south, the former partner or employee could alert them to the fact that you sold $xx,xxx worth of T-shirts and didn't report the income. (Tax fraud.) Maybe the employee rats you out when SHE gets audited, or maybe she's unable to hide the income from the bysiness when she's audited.

It's easier to just pay the taxes you owe.

Re:Fuck you, Canada

[Coeurderoy]

Well you invested in some hardware to do the mining, and then got some return on investment, so what makes this different from for instance
buying a bakery, flour and various other things, and then selling bread, except of course that there is not much added work into the bitcoin mining opperation.

Why should it be tax free and other form of return on investment should be taxable ?

Now if you think that your government is not using its tax money wisely, you're free to try to elect somebody else, even try to get elected, but bitcoin mining is in no way "special".

On one hand it is "cool", but it is also trying to fix a human issue through technological means, and that does not work that well.

You are living in the same illusion as the people who claim that the internet treats censorship as a bug and routes around, it does not.
You can partially avoid censorship, more or less the same way as it was possible to avoid it 50 years ago, by taking risk, being prudent, and changing strategies very regularly.
But china is still a dictatorship, and our democratic advanced societies are rather less open to free speech than 20 years ago.
Moreover we live in a flood of data, where dissent is tolerated because it can be drowned by lolcats.

So instead of looking for ways to avoid taxes, make sure that they serve some useful purpose...

The summary (and TFA) is misleading.

[nuckfuts]

The CRA is not claiming a tax on "all transactions". They're claiming a tax on capital gains and income. If you make a transaction that results in a chunk of cash coming into your possession, or the equivalent in material goods, the value of that gain is considered taxable income. It has absolutely nothing to do with the medium of exchange. The CRA is not taxing BitCoin per se; they are taxing profits. They don't care whether you're using BitCoin or not. They're merely pointing out that using BitCoin as a medium of exchange does not confer some kind of exemption from taxes due.

Bitcoin Mining Business

[CanEHdian]

This should mean that you can start a business that is into bitcoin mining, and have your cost of doing business (Top-of-the line computers, GPU cards, etc.) deductable as a business expense.

Re:Dear CRA...

[west]

Bitcoin tax evasion. It's a commodity just like any other, and the CRA is going to treat it as such. Sorry, no villains here, move along.

This applies to Sweden, too

[xiando]

I've traded a few bitcoins so I looked up the local rules and the rules for currency trading is basically the same as stock trading. Nothing special, you take gains minus losses and pay capital gains tax on that. duh!? I don't see how Canada saying that normal rules for currency sales & sales of goods and services in other currencies apply to Bitcoin is "breaking news". Here's the rules which apply to Swedish people: http://www.skatteverket.se/privat/skatter/vardepapperforsakringar/utlandskvaluta/valutahandel.4.70ac421612e2a997f85800029336.html

Re:Except most R&D IS done by companies

[joocemann]

You don't know enough about research and industry.

I will sum it up.

Public research digs up the most fundamental knowledge that in itself is only knowledge that can be applied.

Private research takes the public findings and refines the knowledge in a very focused, product-oriented way.

Both are required for our current successes.