The Canadian Revenue Agency (CRA) has announced it views Bitcoin and digital currency as “specified foreign property” for tax purposes.
The clarification was given in a document, originally dated April 16, as part of a response to a request for additional information regarding Canada’s tax treatment of digital currency wealth.
The request outlined a situation in which a company invests over a certain amount “in a foreign partnership, which in turn invests in digital currency (e.g. bitcoins). The foreign partnership uses currency arbitrage/exchange and other trading methods to increase the net asset value of the fund in a foreign currency.”
The response stated that:
“digital currency would be funds or intangible property and would be specified foreign property of a person or partnership to the extent that it is situated, deposited or held outside of Canada and not used or held exclusively in the course of carrying on an active business.”
Conversely, “the partnership interest would not be specified foreign property if the partnership is a specified Canadian entity,” the CRA writes.
Canada has been the scene of much debate regarding the status of Bitcoin in the country as a whole, notably in contrast to the patchwork elephant system currently in play across the border in the US.
Andreas Antonopoulos has even advised lawmakers on the best ways to foster a constructive legislator environment for digital currencies in the mid to long term.
In this most recent case, the CRA added the proviso that its “technical interpretation” should not be taken as a blanket ruling, nor did it “confirm the income tax treatment of a particular situation but is intended to assist [the enquirer] in making that determination.”
As Lexology reports, under current rules of the country’s Income Tax Act (ITA), Canadian taxpayers with foreign property assets whose aggregate cost exceeds CA$100,000 are required to fill out a specific form in which the amount of “specified foreign property” is declared.
However, speaking to Cointelegraph, uBITquity CEO Nathan Wosnack, whose business consults on regulatory compliance for digital currency-implicated entities in Canada, voiced doubts about the potential unenforceability of the CRA’s advice.
“My concern is enforcement and understanding what tools and methods CRA investigators would be using for determining whether someone who hasn't voluntarily supplied this information for tax reporting purposes has X amount of bitcoin (or other digital currencies) in a foreign country,” he said, concluding:
“How is this measured; by the holding of bitcoin in an exchange overseas, in a wallet on a hosted server in another country? Do they have forensic teams tracking wallet addresses and tracking address mixing? I'd be curious to find out.”