The blockchain tax lead at Deloitte has said there is a misconception that investors only have to report their cryptocurrency tax when their coins have been traded back into Canadian dollars.
According to Alexia Hefti, another incorrect belief is that investors actively trading digital currencies don’t need to record those trades.
In a report from CBC News, Hefti explained:
A lot of Canadians this year have been trading different types of cryptocurrencies — so for example bitcoin to ether, ether to litecoin, and so on — each of those transactions is a disposition of property and is taxable.
Notably, the way a person’s cryptocurrency tax will be handled will depend on how it has been used. Those trading in digital currencies will have different reporting methods compared to those who are using their coins to make purchases or simply hold their coins. For many, however, the problem lies in the classification of what cryptocurrencies are.
In the opinion of Cloudesley Hobbs’, the chief legal officer of Dominion Bitcoin Mining Company, the Canada Revenue Agency (CRA) should clarify the definition of digital currencies. Whereas in 2013 there were only a handful of coins, today there are over 1,500.
Hobbs said:
Cryptocurrencies… are not exactly all the same flavour. Without some further clarification from the CRA in terms of how those transactions are going be dealt with, it’s left the public in a little bit of a grey zone.
According to Credit Karma, a free credit monitoring app, less than 100 people, out of the 250,000 who have filed their taxes this year through the company, disclosed a cryptocurrency transaction to Uncle Sam. Yet, while crytocurrency tax gains are being underreported, the Internal Revenue Service (IRS) is leading the way for a change.
In November, the agency successfully sued digital currency exchange Coinbase to comply with a summons that required it to identify 14,355 accounts. Covering transactions between 2013 and 2015, the IRS initially wanted access to more than one million accounts.
Hobbs added:
Technically, I would say that your duty is to report all forms of income to Revenue Canada and that cryptocurrencies are taxable, so the proper stance should be advising the CRA of any cryptocurrency holdings a person may have for tax purpose.
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