[kwlug-disc] Accepting bitcoin (and other cryptos) as a Canadian business (Bob Jonkman)

Sat Oct 21 10:44:24 EDT 2017

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I love this list!

Only one question: Is ITC "Input Tax Credit"?
https://www.acronymfinder.com/Input-Tax-Credit-(tax-refund%3b-Canada-and-Australia)-(ITC).html

- --Bob

(Hi Tom! Didn't know you were on this list too!)

On 2017-10-21 09:41 AM, Tom Fahey wrote:
> Replying to the thread regarding the tax treatment of a sale of
> C$100 services in exchange for BitCoin, followed by a gain on the
> BitCoin.
> 
> It appears that the discussion has not yet taken into consideration
> the two different taxation issues arising from the example
> transaction - GST/HST and income tax are two separate issues. The
> tax treatment of any gain or loss from "holding" BitCoin will be
> determined based on the nature of the underlying transaction that
> gave rise to the acquisition of the BitCoin.
> 
> The first tax issue relates to GST/HST.
> 
> Assuming the seller is a GST/HST registrant, the seller will need
> to first determine if the "supply" is a supply in Canada. If the
> supply is not in Canada, it is an export supply, the transaction
> and is normally zero-rated, and no GST need be applied. If the
> supply is in Canada, the seller will then need to determine if the 
> supply is made in our outside of a participating province. This
> will determine the applicable GST/HST tax rate to apply to the
> supply.
> 
> The GST/HST to be charged and collected will be the fair market
> value (FMV) of the supply multiplied by the applicable GST/HST tax
> rate.
> 
> The FMV is to be denoted / calculated in Canadian dollars(C$).  If
> the supply is denoted in a foreign currency, it must be converted
> to C$. The Canada Revenue Agency (CRA), as a general rule, requires
> the conversion to be made using the relevant currency exchange rate
> quoted by the Bank of Canada at noon on the date of the
> transaction.
> 
> Based on the example, a GST/HST registrant supplying services with
> a FMV of C$100 will charge 13% HST (if the place of supply is
> Ontario, a participating province where the HST rate is 13%).  The
> registrant will report the taxable supply and tax collected, and
> any GST/HST ITCs on its GST/HST return for the period.  If the tax
> collected is greater then the ITCs paid in the period, the
> registrant must remit the net tax payable to the Receiver General
> for Canada.  If the ITCs paid are greater than the tax collected,
> the registrant can claim a refund.
> 
> The second issue relates to income tax.
> 
> The taxpayer is required to determine "income" base on the Income
> Tax Act (ITA).  In the example transaction, the supply of services
> gives rise to C$100 of taxable revenue, and this revenue will be
> included in the taxpayers calculation of "income".
> 
> The final issue, the tax treatment of any exchange gain or loss on
> holding a "currency" (BitCoin).
> 
> The ITA does not contain any definitions of the nature of foreign
> exchange gains or losses.  Instead, the taxpayer must look to the
> underlying nature of the original transaction.  A foreign exchange
> gain or loss as a result of a purchase or sale of goods or services
> will be treated as a revenue item, while a foreign exchange gain or
> loss on the purchase or sale of a capital property will be treated
> as a capital gain or loss.
> 
> The question of BitCoin (and other cryptocurrencies) being "money"
> is yet to be answered.  The Bank of Canada has ongoing research on
> the topic, and at this point BitCoin does not yet qualify as
> "money".
> 
> So in summary, the example transaction, a sale of C$100 services
> in exchange for BitCoin valued at C$100 is a barter transaction. It
> is a taxable "supply" for GST/HST purposes, and if supplied by a
> GST/HST registrant, would be taxed at 13%, if the place of supply
> is Ontario.  For income tax purposes, the transaction will be
> treated as C$100 of revenue to be included in the taxpayer's
> calculation of income from a business.  Any gain or loss (realized
> or unrealized) on a change in value of the medium of exchange, the
> BitCoin, would be treated as adjustment to business income.
> 
> References:
> 
> GST/HST and place of supply rules 
> https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/gst-hst-businesses/charge-gst/gst-hst-place-supply-rules.html
>
>  Review of tax treatment of foreign exchange gains and losses and
> recent amendments to subsection 39(2) ITA 
> http://www.rcgt.com/en/experts-opinions/review-tax-treatment-foreign-exchange-gains-losses-recent-amendments-to-subsection-392-ita/
>
>  Canadian Taxation of Foreign Exchange Gains and Losses 
> http://miningtaxcanada.com/bibliography/Canadian%20Taxation%20of%20Foreign%20Exchange%20Gains%20and%20Losses.pdf
>
>  ARCHIVED - Foreign exchange gains and losses - Canada.ca 
> https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/it95r-archived-foreign-exchange-gains-losses/archived-foreign-exchange-gains-losses.html
>
>  Decentralized E-Money (Bitcoin) 
> http://www.bankofcanada.ca/wp-content/uploads/2014/04/Decentralize-E-Money.pdf
>
>  Briefing on Digital Currencies 
> http://www.bankofcanada.ca/wp-content/uploads/2014/04/Senate_statement.pdf
>
>  Tom Fahey Elmira, ON
> 
> On Fri, Oct 20, 2017 at 1:42 PM, <kwlug-disc-request at kwlug.org>
> wrote:
> 
>> 
>> Message: 1 Date: Fri, 20 Oct 2017 12:37:00 -0400 From: Bob
>> Jonkman <bjonkman at sobac.com> To: KWLUG discussion
>> <kwlug-disc at kwlug.org> Subject: Re: [kwlug-disc] Accepting
>> bitcoin (and other cryptos) as a Canadian business Message-ID:
>> <51855378-cd31-24a5-02fd-2bc914a896c5 at sobac.com> Content-Type:
>> text/plain; charset=utf-8
>> 
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>> 
>> Chamunks wrote:
>>> So @Bob you're saying it's better to just cash out the 13% out
>>> of BTC and bank that for tax day?
>> 
>> I don't know if it's "better", but it's certainly more
>> straightforward.
>> 
>> Until CRA starts accepting BTC as a payment method it needs to
>> be handled as a foreign currency. And I'm not sure if BTC is
>> recognized as a foreign currency, so then it may need to be dealt
>> with as barter. IANAA, YMMV, ETC.
>> 
>> Joel wrote:
>>> Your thinking is on the right track but I wouldn't record it
>>> that way.
>> 
>> Thanx Joel! As you point out, there are different ways of
>> recording the transaction, and different payment schedules to
>> CRA. Retaining a tax accountant for a small business is a prudent
>> move.
>> 
>> - --Bob.
>> 
>> 
>> 
> 
> 
> 
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- -- 
Bob Jonkman <bjonkman at sobac.com>          Phone: +1-519-635-9413
SOBAC Microcomputer Services             http://sobac.com/sobac/
Software   ---   Office & Business Automation   ---   Consulting
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