Canada: More Guidance From The CRA On Bitcoin Activities and Transactions

Last Updated: April 25 2014
Article by Timothy Fitzsimmons

Following the recent IRS publication on the U.S. tax treatment of bitcoin activities and transactions, the CRA has issued further guidance on the Canadian tax issues arising in respect of the virtual currency.

In CRA Document No. 2014-052511E5 "Virtual Currencies (Bitcoins)" (March 28, 2014), the CRA was asked several questions about bitcoin activities and transactions (not all of the underlying facts are described in the technical interpretation, but we can infer what the taxpayer asked from the responses provided by the CRA).

Bitcoin Mining Business?

In respect of bitcoin "mining", the CRA noted the difference between business and personal activities. In Stewart v. The Queen (2002 SCC 46) the Supreme Court of Canada stated that an activity may be commercial in nature if the taxpayer had a subjective intention to profit and there was evidence of business-like behaviour supporting such intention. Whether a particular activity is undertaken for profit is a question of fact that can only be determined on a case by case basis. The CRA stated that, in this case, the taxpayer appeared to be operating a bitcoin mining business.

If a taxpayer mines bitcoins in a commercial manner, the taxpayer's income for the year will be determined with reference to the property in the taxpayer's inventory at the end of the year. The rules for determining the value of inventory are described in section 10 of the Income Tax Act and Part XVIII of the Income Tax Regulations, and in most cases will be either (i) the value of the inventory at the end of the year at its cost or fair market value (whichever is lower) or (ii) the value of the inventory at the end of the year at its fair market value (this requires a determination of whether or not the business activity is an adventure or concern in the nature of trade). In certain cases, other methods of valuing inventory may be available (see Interpretation Bulletin IT-473R "Inventory Valuation" (December 21, 1998)).

Theft / Losses

The CRA also noted that a loss of trading assets (i.e., inventory or cash) through theft or embezzlement is normally deductible in computing income from a business if such losses are an inherent risk of the business and the loss is reasonably incidental to the business activities. The amount of the loss would be the cost of the property less any insurance proceeds. Stolen capital property may result in a capital loss (see Interpretation Bulletin IT-185R "Losses from Theft, Defalcation or Embezzlement" (March 9, 2001)). This is interesting, given the recent difficulties encountered by the Mt. Gox bitcoin exchange, which in February 2014 discovered a theft of more than 700,000 of its bitcoins.

Gifts / Other Income

The CRA added that a gift of a virtual currency would not be subject to income tax in the hands of the recipient (see Interpretation Bulletin IT-334R2 "Miscellaneous Receipts" (February 21, 1992)). However, where a taxpayer receives a voluntary payment from an employer or another person in connection with employment, the payment may be taxable as employment income under section 5 or as a taxable benefit under paragraph 6(1)(a) of the Income Tax Act. Further, voluntary payments received in connection with a business must be included in the taxpayer's income from that business.

Barter Transactions

Finally, the CRA stated that, where one type of virtual currency is exchanged for another type of virtual currency, the value of the goods or services received by the taxpayer must be brought into the taxpayer's income if they are business-related (see Interpretation Bulletin IT-490 "Barter Transactions" (July 5, 1982)).

The CRA suggested that Canadian taxpayers should review the CRA's fact sheet, "What you should know about digital currency" (November 2013).

For more information, visit our Canadian Tax Litigation blog at

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