Unsurprisingly, the Canada Revenue Agency ("CRA") followed the Internal Revenue Service ("IRS") in seeking a court order for records from cryptocurrency exchanges. The tax authorities prevailed in both cases, increasing the transparency of cryptocurrency trading and investing.
Especially in its earlier days, cryptocurrency had a reputation as an underground currency providing secrecy and facilitating black-market transactions. This notoriety began to recede when in November 2016 the IRS (the US tax authority) filed a generic request, known as a "John Doe" summons, on all U.S. Coinbase customers who had transferred Bitcoin between 2013 and 2015. The IRS initially sought all records, including third party information.
While the US District Court – California Northern District (San Francisco) (Case 3:17-cv-01431-JSC) found that the IRS request was broader than necessary, it nonetheless ordered significant disclosure from accounts having a minimum of $20,000 in any one transaction during the 2013 to 2015 time period. The disclosure included the taxpayer's identification number, name, birthdate, address, records of account activity, and all periodic statements of account.
In 2020, the CRA followed the IRS's lead and brought an application to the Federal Court for an order to compel Coinsquare to produce customer records pursuant to subsection 231.2(2) of the Income Tax Act ("ITA") and section 289(2) of the Excise Tax Act ("ETA"). Subsection 231.2(1) of the ITA allows the Minister of National Revenue ("Minister"), for any purpose related to the administration or enforcement of the ITA, to require that any person provide, within a reasonable time, any information or any document. Subsection 231.2(2) extends this power in respect of unnamed persons, provided that the Minister first obtains the authorization of a judge. Section 289 of the ETA parallels 231.2(1) of the ITA, but also applies in respect of the enforcement of certain listed international agreements, including comprehensive tax information exchange agreements that Canada has entered into with other countries.
In the CRA's application, which was limited to Coinsquare's top 16,500 largest customers (by trading volume) and customer accounts with a value of $20,000 or more between 2014 and 2020, it sought production of the following from Coinsquare:
(i) a list of all customer accounts, both active and inactive, either alone or jointly held with any other persons or businesses;
(ii) a detailed listing of all cryptocurrency and fiat currency transfers identifying the source and destination of all customer's deposits and withdrawals;
(iii) a detailed listing of all trading activity of its customers, including over-the-counter or off-exchange trades;
(iv) a copy of the 'know your customer' documentation;
(v) a list of all deposit addresses of its customers; and
(vi) all other additional information retained by Coinsquare relating to cryptocurrency or fiat transactions of its customers.
On March 19th, 2021, the Federal Court granted the CRA's application (Minister of National Revenue v Coinsquare Ltd. (T-1114-20)) and ordered that the Minister is authorized to impose on Coinsquare a requirement pursuant to subsection 231.2(1) of the ITA and subsection 289(1) of the ETA relating to unnamed persons. The result is that Coinsquare must produce the requested documents and information about its customers to the CRA.
Based on the Federal Court's decision in Coinsquare, Canada can bid farewell to the wild west days of cryptocurrency.
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