MP Group, a chartered accounting firm based in Toronto was among the first to enter the Canadian blockchain space in 2015, working for such clients as the co-founder of the Ethereum cryptocurrency. The firm has since helped clients across the country to answer questions about buying, investing in and selling cryptocurrencies.
“A few clients ask whether cryptocurrency can trigger any tax consequences at all,” says partner Kunal Parshotam, CPA. “Yes it can and you have to plan carefully to minimize tax consequences and structure your business.”
The Canada Revenue Agency (CRA), for example, treats cryptocurrencies as commodities, so businesses selling cryptocurrencies from public kiosks can’t collect GST or HST on their sales.
“The tax consequences involved with cryptocurrencies largely depend on the nature of the activity you engage in,” says partner Raffael Mazze, CPA. “For example, if you’re an investor with a long-term view, an increase in the value of that cryptocurrency could represent a capital gain. If you’re actively trading cryptocurrencies seeking business profits, it’s considered business income and would be taxed at a higher rate.”
If an early investor in Bitcoin uses an increase in its value to purchase units of another alternative currency, such as Ripple, the value of that purchase would also be treated as a capital gain.
“It’s treated by the CRA as a barter transaction, and many investors don’t realize that,” says Parshotam. “A lot of investors simply need a little guidance about operating in the cryptocurrency space.”
And yes, MP Group accepts Bitcoin as payment.
“But to date CRA doesn’t,” says Mazze.
“They’ll accept cash, but nothing they see as a commodity.”