Feigenbaum Law

Canada Revenue Agency Auditing Cryptocurrency Investors

Bitcoin
Personal Tax Planning
April 5, 2019

Last year, we wrote about how Bitcoin and other cryptocurrency is treated by the Canada Revenue Agency (CRA) for tax purposes and what impact an investment in crypto might have on a Canadian taxpayer’s taxes.  

Now, crypto and the CRA are back in the news as the agency continues to finesse its approach to digital currency and adapt to rapidly changing realities.

According to a cryptocurrency journalist writing for Forbes magazine, the CRA has recently been auditing Bitcoin users in Canada. What does this mean, and how can taxpayers prepare?

The CRA and Cryptocurrency

According to an unnamed CRA media contact who spoke to the Forbes writer, the CRA established a “dedicated cryptocurrency unit” in 2017 with the goal of “build[ing] intelligence” and conducting audits.

The unit is part of the CRA’s larger Underground Economy Strategy, which focuses on emerging platforms and new business models (for example, the sharing economyand digital currencies) and has “enhanced the CRA’s ability to monitor and enforce compliance in areas of emerging risk.”  

As we’ve written about previously, the CRA views digital currency as a commodity, therefore making it taxable as a barter transaction, business income, or capital gains.

The CRA’s Cryptocurrency Questionnaire

As part of their broader auditing and oversight initiative, the CRA has been sending selected taxpayers a 13-page long questionnaire posing 54 questions about cryptocurrency related activities.

These questions include queries about:

  • How long the taxpayer has been involved in cryptocurrency;
  • How the taxpayer got involved in cryptocurrency;
  • Whether the taxpayer invests in cryptocurrency or is involved in that space in another capacity (i.e. as an advisor, etc.);
  • Whether documentation about cryptocurrency was provided to a tax preparer for any tax returns filed during the period under audit;
  • How frequently does the taxpayer engage in cryptocurrency transactions;
  • Does the taxpayer use cryptocurrency mixing services or tumblers

The questionnaire also asks taxpayers to provide a list of all Bitcoin addresses and a history of crypto purchases made.

The CRA told Forbes:

The Canada Revenue Agency (CRA) understands that a vast majority of middle-class Canadians pay their fair share, but it remains committed to ensuring that without exception, every taxpayer abides by the same tax laws. As a world-class tax administration, the CRA is also committed to adapting its administration to keep pace with evolving global services and products, and making key investments to effectively address the new ways of doing business in the global economy.

It remains to be seen how many taxpayers will be affected by this audit, and what the CRA plans to do going forward.

The IRS and Cryptocurrency

The CRA is not alone in targeting cryptocurrency. As we previously blogged about, late last year, a California court ordered the largest bitcoin exchange in the U.S. to hand certain customer information over to the IRS to facilitate the IRS’ investigation into underreporting of virtual income gains.

How Can Feigenbaum Law Help?

The deadline to file taxes for Canadian taxpayers is April 30th, and June 15th for self-employed individuals.

If you are a Bitcoin or other cryptocurrency user or investor and have questions about how the increased scrutiny of the CRA or the IRS may impact you going for this tax filing deadline or going forward, contact Mark Feigenbaum at Feigenbaum Law.

We regularly assist high net-worth individuals on both sides of the border
with complex personal and corporate tax planning. We regularly track regulatory, legal, and policy changes across various jurisdictions so that we can remain at the leading edge of change as it is occurring. We rely on this knowledge to provide our clients with the most up to date information so that they can manage their wealth, meet their obligations vis-à-vis taxes in various jurisdictions, and mitigate any potential legal and financial risk which they may face.

Where needed we represent clients in tax litigation. We have an expertise in navigating the complexities of the U.S., Canadian, and other tax systems and receive complex referral cases. We provide discreet, timely, and professional results for clients facing challenging or complex situations. Contact us at mark@feigenbaumlaw.com, or call us at (905) 695-1269 or toll free at (877) 275-4792 to learn more about how we can help.


Tagged: audit, Bitcoin, corporate tax planning, CRA, cryptocurrency, personal tax planning