Canada ONLY: Taxes and law

[Brunic]

I've read a little the forums here, but it's all about the US. It gives a guideline, but it's not the real law for us in Canada. Any Canadians around here who have legal informations about Bitcoins? If so, please come tell us that it's a lot better than in the US

I'll be looking in that legal matter soon, probably next month, when I'll have a little more time. I run a mining operation that's getting somewhat big, and I want more details about the legal side of all this.

I'm interested in making Bitcoin mining a legitimate business around here. With the winter and Hydro-Québec, it's like paradise over here for mining  Hope I get big like Alcan and enjoy the 2.95 cents/kwh or have my own dam. 

[Stephen Gornick]

I'll be looking in that legal matter soon, probably next month,

I've updated the wiki article to have a section for Jurisdictions.  Please share what you've learned.
 - http://en.bitcoin.it/wiki/Tax_compliance#Jurisdictions

[Fuzzy]

I was told by an accountant that technically, your BTC are an investment, you pay taxes once you realize that investment by turning it into CAD dollars, and that is counted as income. You can however deduct hardware depreciation if you bought mining hardware.

None of that is technically accurate, so you'll need to talk to a tax person either way.

[foggyb]

What if you purchase goods and services with bitcoins?

[ColdHardMetal]

I was told by an accountant that technically, your BTC are an investment, you pay taxes once you realize that investment by turning it into CAD dollars, and that is counted as income.

Doesn't matter if it's CAD. Once you realize a gain it's liable to taxation. You may need to go through of step of converting the transaction into CAD terms based on the rates at the time, or the official average rate of the year, but realizing the gain in not CAD doesn't exempt you from taxation. It's the same as if you sell your house for USD and make a gain on the sale, you're still liable for tax on the gain.

You can however deduct hardware depreciation if you bought mining hardware.

Depending on how you're filing, possibly. I expect that would be easier if you're filing as a business rather than if you're filing personally, but possibly in both cases.

None of that is technically accurate, so you'll need to talk to a tax person either way.

Most certainly that.

What if you purchase goods and services with bitcoins?

Doesn't really matter. You would need to convert the transaction into CAD terms and determine if you made a gain on it.

Merely as an observation, and not as advice in any way, shape, or form, but this is probably one of those spots where you could slip one past the goalie.

[mc_lovin]

I claimed bitcoin on my tax return!  I am a legit miner now!!

edit: and I'm Canadian, too.  The tax representative at H&R Block was thinking bitcoin is some sort of financial gain, he was thinking it was like trading stock but I told him it was money generated from thin air from mining, so almost like mining for gold and selling the gold to an exchange.  I claimed like $4000 worth which is appropriate for the tax bracket. 

I'm also feelin' the cold winter nights and low electricity bills, I think it's like 5.9c / kWh over here in Winnipeg, MB, not as cheap as you but still makes for profitable mining!

[Epoch]

I claimed bitcoin on my tax return!  I am a legit miner now!!

edit: and I'm Canadian, too.  The tax representative at H&R Block was thinking bitcoin is some sort of financial gain, he was thinking it was like trading stock but I told him it was money generated from thin air from mining, so almost like mining for gold and selling the gold to an exchange.  I claimed like $4000 worth which is appropriate for the tax bracket. 

I'm also feelin' the cold winter nights and low electricity bills, I think it's like 5.9c / kWh over here in Winnipeg, MB, not as cheap as you but still makes for profitable mining!

Whether mined BTC is converted to CAD, or traded for services, it is considered as income and should be reported on an income tax filing. You handled this correctly, whether the H&R rep was technically correct about bitcoin or not.

In return for reporting your income, the Canadian government grants you the right to claim various reasonable and necessary expenses associated with the generation of that income. Namely, you can deduct the depreciation of your mining hardware (there is a formula for that; you cannot claim the full amount immediately) and the associated electricity costs. Those will be your two main claimable expenses.

BTW: your Winnipeg residential rate is exactly $6.62c/kWh plus a provincial tax of 14.5% for a total charge of 7.58c/kWh. There will be a rate hike shortly.

[BladeMcCool]

IMO, the burden of proof lies on RCA to prove a) Bitcoins exist. b) I ever actually got any. c) That I currently control any d) That I actually have the passphrase required to re-title them to another address. If they can't prove those 4 things in court, then I fail to see how I could be liable for a damn thing.

[Epoch]

IMO, the burden of proof lies on RCA to prove a) Bitcoins exist. b) I ever actually got any. c) That I currently control any d) That I actually have the passphrase required to re-title them to another address. If they can't prove those 4 things in court, then I fail to see how I could be liable for a damn thing.

There is little point in pursuing this argument much further, because it clearly is everyone's personal choice how they treat BTC income/gains for income tax purposes, but I would suggest you familiarize yourself with the Canadian Income Tax Act available on the CRA website. The legal definition of 'income' for purposes of reporting is clearly spelled out; it is not a question of 'opinion'.

When you get audited and are asked to explain where the extra $2k or $5k or $10k came from that magically appeared in your bank account for which you have no record or T4 slip, think back to this thread.

Of course the above mainly concerns miners and only applies if you are converting mined BTC into currency; if you are mining BTC and leave it as BTC it is not taxable because it is unrealized income. It only becomes taxable when you convert it to fiat (or trade it for something).

If you buy BTC with your own money, sit on it for 6 months, and it appreciates in value by 50%, you are not taxed on that 50% until you actually sell the BTC. It is akin to capital gains on a stock; the gains are not taxed until you sell the stock.

[BladeMcCool]

IMO, the burden of proof lies on RCA to prove a) Bitcoins exist. b) I ever actually got any. c) That I currently control any d) That I actually have the passphrase required to re-title them to another address. If they can't prove those 4 things in court, then I fail to see how I could be liable for a damn thing.

There is little point in pursuing this argument much further, because it clearly is everyone's personal choice how they treat BTC income/gains for income tax purposes, but I would suggest you familiarize yourself with the Canadian Income Tax Act available on the CRA website. The legal definition of 'income' for purposes of reporting is clearly spelled out; it is not a question of 'opinion'.

When you get audited and are asked to explain where the extra $2k or $5k or $10k came from that magically appeared in your bank account for which you have no record or T4 slip, think back to this thread.

Of course the above mainly concerns miners and only applies if you are converting mined BTC into currency; if you are mining BTC and leave it as BTC it is not taxable because it is unrealized income. It only becomes taxable when you convert it to fiat (or trade it for something).

If you buy BTC with your own money, sit on it for 6 months, and it appreciates in value by 50%, you are not taxed on that 50% until you actually sell the BTC. It is akin to capital gains on a stock; the gains are not taxed until you sell the stock.

Ok so, what you are saying here is, that by selling BTC for CAD and then attaching my SIN number to it by depositing it in my bank account, I'm now in RCAs jurisdiction. Or something like that. So basically you would need to cash out using a means that does not attach your SIN number to it? Like sell BTC->Gold (coinabul)->CAD (pawn shop?) ... So it sounds like I'm going to have a fun time when this finally comes to a head. I'll probably get jailed for contempt anyway when I insist on videorecording the proceedings. Lol. Oh well.

[Stephen Gornick]

if you are mining BTC and leave it as BTC it is not taxable because it is unrealized income. It only becomes taxable when you convert it to fiat (or trade it for something).

So let's say year 1 the miner (operating as a business) invests $2,000 CAD into hardware, and by the end of the year has 200 BTC and electric consumption of $600 CAD to generate those BTCs.

Then in year 2 the BTCs are sold (not sure of Canada has the distinction of short-term vs. long-term capital gain, assume all BTCs were held 1 year after mined).

Would electricity be deducted in year 1?   If so those BTCs would need to sit on the books as an asset somewhere then, right?  Heh, ... inventory?

[Epoch]

if you are mining BTC and leave it as BTC it is not taxable because it is unrealized income. It only becomes taxable when you convert it to fiat (or trade it for something).

So let's say year 1 the miner (operating as a business) invests $2,000 CAD into hardware, and by the end of the year has 200 BTC and electric consumption of $600 CAD to generate those BTCs.

Then in year 2 the BTCs are sold (not sure of Canada has the distinction of short-term vs. long-term capital gain, assume all BTCs were held 1 year after mined).

Would electricity be deducted in year 1?   If so those BTCs would need to sit on the books as an asset somewhere then, right?  Heh, ... inventory?

That's certainly an interesting (and not unreasonable) scenario you describe. I don't believe I can answer that with any confidence. 

[ArticMine]

First I must say that I am not a Lawyer or an Accountant. I am only sharing what I do for both Bitcoin / Namecoin  mining and trading.

Bitcoin / Namecoin mining. The value in CAD of the Bitcoins or Namecoins is taken as income when they are mined at the market exchange rate regardless of whether they are subsequently sold or not. This value is the same that is used as the cost to determine the adjusted cost base of the Bitcoins or Namecoins. One can also use an average value for the exchange rate as the CRA will likely accept any reasonable approach applied on a consistent basis.

Are Bitcoins or Namecoins "money" or a "commodity"? For Bitcoins the case for money is very good in particular with respect to section 123 of the Excise Tax Act http://laws-lois.justice.gc.ca/eng/acts/E-15/page-94.html#h-71

“money”

« argent »

    “money” includes any currency, cheque, promissory note, letter of credit, draft, traveller’s cheque, bill of exchange, postal note, money order, postal remittance and other similar instrument, whether Canadian or foreign, but does not include currency the fair market value of which exceeds its stated value as legal tender in the country of issuance or currency that is supplied or held for its numismatic value;

This means treating any increase or decrease in value on disposition as a capital gain or loss and there being no GST/HST on the sale of Bitcoins in Canada.

For Namecoins on the other hand I would argue for a commodity. In this case GST/HST would have to be charged in Canada for a sale and one can elect to have any increase or decrease in value on disposition treated as capital gain or loss.  

Are mining costs deductible? This really comes down to whether the mining operation is a hobby or business? If it is the former no. If it is the latter then yes. The electricity cost would be deductible (although if the "waste" heat from the mining is used to heat a residence in winter a CRA auditor could argue this). It should also be possible to depreciate the equipment etc.

[Gabi]

Let's speak about WoW gold or EVE isk

I can sell 500millions of isk for like 2BTC or for like 10$ or more. Yes it is a bit against the eula and the EVE rules but not against any law.

So when i run some missions ingame and i gain isk do i have to pay real taxes on them?

Well i say that the answer also apply for bitcoin. If i mine bitcoin i pay no taxes, i'll pay taxes the day i'll sell them/i buy something with them (even if buying things with btc can be tought like barter, well barter is taxed)

[Fuzzy]

Let's speak about WoW gold or EVE isk

I can sell 500millions of isk for like 2BTC or for like 10$ or more. Yes it is a bit against the eula and the EVE rules but not against any law.

So when i run some missions ingame and i gain isk do i have to pay real taxes on them?

Well i say that the answer also apply for bitcoin. If i mine bitcoin i pay no taxes, i'll pay taxes the day i'll sell them/i buy something with them (even if buying things with btc can be tought like barter, well barter is taxed)

The Government always wants a slice.

Pro Tip: Do NOT try to f%#& the government out of their (fair or unfair) share. Like a violent pimp, they do not mess around when it comes to getting paid.

[ArticMine]

Let's speak about WoW gold or EVE isk

I can sell 500millions of isk for like 2BTC or for like 10$ or more. Yes it is a bit against the eula and the EVE rules but not against any law.

So when i run some missions ingame and i gain isk do i have to pay real taxes on them?

Well i say that the answer also apply for bitcoin. If i mine bitcoin i pay no taxes, i'll pay taxes the day i'll sell them/i buy something with them (even if buying things with btc can be tought like barter, well barter is taxed)

I am not a Lawyer or an Accountant, this is just how I see it.

Let us say you provided a service to someone (say fix their computer) and they pay you in WoW gold or EVE isk. Is this taxable? You bet it is at the fair market value of the WoW or EVE isk when you were paid for the service. And if you are registered for the GST / HST you would have also to charge them the GST / HST in WoW gold or EVE isk and submit the CAD equivalent to the CRA.  The gaming example is more interesting. If the fair market value of the WoW gold or EVE isk is less that what you paid to participate in the game then the argument can be that all you did is reduce the cost of your entertainment since the primary purpose of the gaming was entertainment. On the other hand if the fair market value of the WoW gold or EVE isk is more than what your cost of participating in the game then yes it is taxable. Let us not forget that there are people who make a good income by gaming and then selling the gaming currency and the taxwoman will want her cut.

[Gabi]

But gold and isk have no fair market value, the eula clearly state that everything ingame is owned by the software house, so technically you own 0 gold and 0 isk, you just use them ingame.
Sure, people trade 10$ for 500 millions isk outside of the game but as i said this is against the rules, if i pay  a service in isk and i pay no taxes, how can the government decide how much taxes i have to pay?

[ArticMine]

If there is a market there is a fair market value quite irrespective of what some EULA may say. Furthermore I have yet to come across a EULA that would override the Income Tax Act in a court of law.

Now to get back on topic. Bitcoins and Namecoins are traded on exchanges worldwide and one can easily establish a fair market value for them in terms of CAD at any point in time.

[Gabi]

Let's ignore the eula, i too know it's worthless vs the law

The point is, if 500 million isk is worth 10$ and if it's taxable then every eve player should pay taxes while he play but of course we know this is not true

[ArticMine]

...

The point is, if 500 million isk is worth 10$ and if it's taxable then every eve player should pay taxes while he play but of course we know this is not true

No. It does not matter how the gamer is compensated, namely isk or BTC, or CAD, etc., but rather is the gamer a professional (taxable) or not (not taxable)? Here is an article on the case of poker players and the taxation of poker winnings:http://taxdood.com/2011/03/07/taxation-of-gambling-winnings-in-canada/ What matters here is whether the player is a professional or not. What the pot is denominated in is totally irrelevant.

By the way CCP can add "Income Tax Auditor" to the EVE Sandbox