Tax when buying bitcoins in an exchange

[dunand]

The exchange I'm using to buy bitcoins charge fees of 0.59% of transaction value. For example, if I buy $100 worth of bitcoins they will charge me $0.59.

If I buy a pair of boots for $100 I need to pay 13.925% in tax or $13.93 (I live in Quebec).

Why are bitcoins different than boot or any other product? Are they different or we are just playing in a gray area? I'm asking this question because I would like to know if it's possible for a brick and mortar shop to offer bitcoins in exchange of money. Customer walk in with fiat money and a smart phone or a qr-code and get out with bitcoins. That service is only possible if the store need to collect tax only on the service fees and not on the total purchase price.


thanks for your inputs

[dunand]

If you go to a bank and ask to buy some us dollars, do they charge you a 13% tax?

In Canada (and probably in a lot of countries) most services provided by financial institutions are exempt from tax. But running a bitcoin exchange does not qualify as a financial service.

I think exchanges can get away with tax because it's a transaction between two individuals and unlike enterprise individuals do not need to collect tax on a transaction (like on craigslist). Only the exchange itself as to charge the tax on the service they provide. But for a B&M shop to sell bitcoins for money? I'm sure the government will want you to collect tax on the total cost of purchase.

[arfeniel]

You can argue that bitcoin is a currency and as such you should not pay tax. I'm not sure, but I think you have to pay tax on the fee they charge you. Since they are not registred in Qc, you have to fill a form to declare the amount of tax you should have paid. Also, any capital gain (and loses) should be declare.

Cheers

[Meni Rosenfeld]

I'm asking this question because I would like to know if it's possible for a brick and mortar shop to offer bitcoins in exchange of money. Customer walk in with fiat money and a smart phone or a qr-code and get out with bitcoins. That service is only possible if the store need to collect tax only on the service fees and not on the total purchase price.

This is definitely possible one way or another, but the details probably depend on the country and even the accountant's interpretation of the activity.

Here is what my accountant told me.

When importing products there is VAT
for the cost of the product + all shipping costs and fees
the importer pays VAT at the country's customs.

As your product is virtual and not tangible
there is no VAT
and in fact there is no import.

You could say you are selling a service rather than a product
as there is no bank which recognizes the aforementioned currency.

In fact you are selling a conversion service
VAT will be paid only for the profit.

So if you buy a bitcoin at $3 and sell it at $3.05, in fact you have provided a service and charged $0.05 for it, so you pay 15% of $0.05 in taxes.

[arfeniel]

Wow, I miss read the OP.

I still think that if YOU buy bitcoin, be it a exchange or between two individuals, and YOU paid a fee to on top of what the bitcoin valuation, since you are a Quebec resident, you should fill out a form to declare the tax you did not pay.

For the part where you ARE the exchange, you don't have to charge tax. Just think of Canadian Tire money (CDNT) : You can exchange it for money with someone else and not be paying tax as long as the 5 CDNT is exchange for exactly 5 CAD. Now, here the tricky part : BTC/CAD change often. So you have to declare gains or loses as you would do for any financial product. Also, if you charge fee for providing the service of exchanging bitcoin you have to charge tax on those services.

You should consider writing (not calling) to Revenu Quebec to avoid suprises. Also, do as Meni and get a accountant who may know a little more about tax law that we do 

Cheers

[arfeniel]

Fom the The Carleton Student Engineering Society's Lounge and Store website :

Leos also accepts Canadian Tire Money at face value.

[dancupid]

The exchange I'm using to buy bitcoins charge fees of 0.59% of transaction value. For example, if I buy $100 worth of bitcoins they will charge me $0.59.

If I buy a pair of boots for $100 I need to pay 13.925% in tax or $13.93 (I live in Quebec).

Why are bitcoins different than boot or any other product? Are they different or we are just playing in a gray area? I'm asking this question because I would like to know if it's possible for a brick and mortar shop to offer bitcoins in exchange of money. Customer walk in with fiat money and a smart phone or a qr-code and get out with bitcoins. That service is only possible if the store need to collect tax only on the service fees and not on the total purchase price.


thanks for your inputs

The person you are buying them from is not the exchange, it's the person who's selling them on the exchange - it is their responsibility to deal with this tax, not the exchange. The profits the exchange make on the transaction will be dealt with like any profit, and will be taxed depending on where they are located.

[arfeniel]

Here is another question: If you go to the iTunes store and buy a 99 cent music download, do you pay 1.13 for it?

Personnal experience, no. But that doesn't mean I should not have paid taxes.

In accordance with local law, your Apple Online Store purchases will be taxed using the applicable tax rate(s) for your shipping address. If the tax rate changes before your purchase is shipped, the rate in effect at the time your order ships will apply.

Based on your shipping address, you may see a combination of these types of taxes on your order:

PST/QST - Provincial Sales Tax and Quebec Sales Tax
GST - Goods and Services Tax
HST - Harmonized Sales Tax (GST + PST)

Also

Once you redeem your iTunes Gift Card, the full amount appears next to your account ID name in the upper-right part of the window as a credit. Any time you buy an item, the purchase price (+ tax) will be deducted from the balance.

I'm from Canada, Apple knows I'm from Canada since every time I buy or rent something (music, movies, etc.) they send me a bill by email and my physical address is shown. Also, they are registred in Canada (Apple Canada) so they have taxes numbers. I don't know why they don't charge me taxes but they should have. Since I have not paid taxes I should make a declaration of self-assessment.

Anyway, the OP should contact the revenu agency to make sure it won't come back in it's face if he doesn't charge tax on fee or if he doesn't declare capital gains or loses.

[teek]

I'd try to play it like stored value..  you don't pay tax on gift cards right?

[arfeniel]

I'd try to play it like stored value..  you don't pay tax on gift cards right?

I don't think gift card can loses or gains value if you let them sit. I'm pretty sure a 100$ gift card will always be worth 100$ no more no less. We can't say that about Bitcoin.

How does work Facebook credit and SecondLife Linden (they have a exchange - LindeX) ? Isn't Bitcoin kinda like those virtual currency?

[arfeniel]

I just found this in the forum:

Bitcoin exchange not the same as LD exchange?
https://bitcointalk.org/index.php?topic=53458.0

[JohnOliver]

https://www.cavirtex.com/faq#taxes

Are you charging GST on your fees?

Yes. GST is being included in the transaction fee.

It's clearly written that GST is included in their transaction fee.

[Technomage]

The taxation issue for Bitcoin is interesting. One thing I can say for sure is that it is NOT a currency. The definition from a taxation law standpoint is "virtual commodity". This is the case at least in Finland, I had to verify all of this from the Finnish financial supervisory authority because I'm starting a business that will sell bitcoins.

I have to add VAT (value added tax) to the price of bitcoins but to go around the problem of needing to add 23% on top of the whole amount (which would create a ridiculously high price for the coins), my business will actually do brokering for our customers so in principle we use the money deposited to us to broker bitcoins from an exchange to our customers and then we only have to include the VAT in the fee we take from the brokering.

Another note, I'm pretty sure that there are a lot of Bitcoin enterpreneurs who are either not paying taxes at all or are somehow doing it wrong. My business will do it by the book from the start, that will save me from the troubles to come when authorities start to get more interested in Bitcoin businesses.

[arfeniel]

[­...] My business will do it by the book from the start, that will save me from the troubles to come when authorities start to get more interested in Bitcoin businesses.

This is the best way to help legitimate Bitcoin and put some light on the good things we can and should do with Bitcoin instead of having SilkRoad thow in our face every time Bitcoin is mention in the media.

[Technomage]

This is the best way to help legitimate Bitcoin and put some light on the good things we can and should do with Bitcoin instead of having SilkRoad thow in our face every time Bitcoin is mention in the media.

I agree.

[lonelyminer (Peter Šurda)]

Here is what my accountant told me.

As your product is virtual and not tangible
there is no VAT
and in fact there is no import.

This might be the case in Israel, but in EU there is a directive "VAT on electronic services". Merchants outside of EU selling certain electronic goods/services to EU citizens must register for VAT and collect it. Whether this applies to Bitcoin is unclear. Exchanges are probably not affected, since they are not the seller.

[Technomage]

This might be the case in Israel, but in EU there is a directive "VAT on electronic services". Merchants outside of EU selling certain electronic goods/services to EU citizens must register for VAT and collect it. Whether this applies to Bitcoin is unclear. Exchanges are probably not affected, since they are not the seller.

This is incorrect. Exchanges are affected by VAT, at least in most countries that have VAT. The fact that the commodity is virtual is not a reason to not pay VAT, that's ridiculous. Everything is in the domain of VAT except the exceptions and there are not many of them. Financial instruments are an exception but bitcoins are not a financial instrument as I've already mentioned. This is how it is in Finland, the VAT laws might be different in other places though.

In case of an exchange, it's not the same as if you were directly selling bitcoins. It's totally different. If you were directly selling them, you'd have to add the VAT to the price of the bitcoins being sold, which would be ridiculous. No one does it that way.

Exchanges don't actually sell bitcoins, they offer a service. But now it's important to remember that not only are all commodities in the domain of VAT, so are all services (with some rare exceptions of course). The exchanges provide a service and the fee they take from each transaction is something that must include VAT unless the exchange is based in a country that doesn't have it. Or if the VAT laws are crappy (well, not crappy from the exchange's perspective but full of holes from any other perspective).

If I'm wrong about this I'd certainly like to know because I'm just about to start a company that will broker bitcoins from an exchange to my clients and vice versa. This is from a taxation perspective the same thing that exchanges do, so I need to include the VAT into the fee that I take from the brokering. I really can't find any loopholes that I could use to avoid VAT, the Finnish VAT law seems fairly strict and has no exceptions that apply, now that I confirmed that bitcoins are not a financial instrument.

[Technomage]

Just wondering since I don't have a VAT, do you pay VAT on used items?

This is a question that does not have a simple answer. I found a 16-page small print PDF from the tax administration of Finland that was explicitly about the use of VAT when selling used items. It apparently depends on a lot of things, but the general answer is that if it's a clear case of "double taxation" then you do not have to pay VAT. But again, this depends on who the seller is, in what use the item was and if it was originally bought with VAT included. That is important because companies can buy stuff without VAT.

[malevolent]

Just wondering since I don't have a VAT, do you pay VAT on used items?

Depends on the country.
For example in Poland I have to pay 2% tax upon registering a second hand car (2% of the price paid for that second hand car, but if the price is considered too low by the Revenue Service they will ask for 2% of the car's market value, same goes for real estate, etc. but that's off topic). Most companies, however, are exempt from this tax.

I think that only the BTC exchanges should be paying taxes from profits they make from exchange fees.
As for BTC buyers - tax paid from capital gains?

Here is another question: If you go to the iTunes store and buy a 99 cent music download, do you pay 1.13 for it?

In all probability the VAT tax is already included in those .99 cents.

[ultima]

Exchanges don't sell bitcoins, they offer you a service. They earn commissions and pay taxes on those commissions.

Bitcoins are bought and sold by two individuals.