Tax authorities around the world continue to wrestle with
issues arising from the use and sale of Bitcoin currency. The
Canada Revenue Agency (CRA) and the US Internal Revenue Service
(IRS) have both announced that Bitcoin is not a currency for
tax purposes. Other jurisdictions have taken different
In recent publications
CRA Document No. 2013-0514701I7 "Bitcoins" (December 23,
CRA Document No. 2014-052511E5 "Virtual Currencies (Bitcoins)"
(March 28, 2014)), the CRA summarised its views on how
certain transactions involving the use, sale or mining of
Bitcoins may be taxed under Canada’s Income Tax
Act and Excise Tax Act.
For example, the CRA stated that the use of Bitcoins to
purchase goods or services would be treated as a form of barter
transaction. If a business sells goods or services in exchange
for Bitcoins, that business must report its income from the
transaction in Canadian dollars (that is, the fair market value
of the Bitcoins at the time of the sale). Goods and services
tax (GST) and/ or harmonised sales tax (HST) would be
applicable on the fair market value of the Bitcoins that were
used to pay for the goods or services.
The trading or sale of Bitcoins like a commodity (that is,
speculating on the changes in the value of Bitcoins) may result
in a gain or loss on account of income or capital. This
determination can only be made on a case-by-case basis and on
the specifics facts of each situation.
And if a taxpayer mines Bitcoins in a commercial manner, the
taxpayer’s income for the year from such mining
activity will be determined with reference to the property in
the taxpayer’s inventory at the end of the
Notice 2014-21 (March 25 2014), the IRS
stated that Bitcoin is property and not currency for tax
purposes. According to the Notice, "general tax principles
applicable to property transactions apply to transactions using
virtual currency". Some of the US tax implications of Bitcoin
- Taxpayers receiving Bitcoins as payment for goods or
services must include in their gross income the fair market
value of the Bitcoins;
- Taxpayers will have a gain or loss upon the exchange of
Bitcoins for other property; and
- Taxpayers who "mine" Bitcoins must include the fair
market value of the Bitcoins in their gross incomes.
The IRS also confirmed in its statement that employment
wages paid in Bitcoins are taxable.
Aside from the recent IRS’s recent guidance on
Bitcoin, the Foreign Account Tax Compliance Act (FATCA) and
other offshore reporting requirements also have an impact on
holders of Bitcoin in non-US accounts and the financial
institutions that host these accounts.
Numerous jurisdictions have taken positions similar to
Canada and the US that Bitcoin is property, not a currency, for
tax purposes (that is, France and Australia).
Denmark all follow the property approach.
Germany has labelled Bitcoin "private money" or a "unit of
account," subject to capital gains tax. On the other hand,
while the EU is working toward consistent treatment of digital
currencies, the UK has recently
announced that it will treat Bitcoin and other virtual
currencies similarly to traditional currencies.
As Bitcoin and other virtual currencies continue to gain
traction, international taxing authorities may need to consider
a consistent approach to the taxation of such currencies. It
remains to be seen which view of Bitcoin — asset,
currency, or some third way— will prevail for tax
Timothy Fitzsimmons (firstname.lastname@example.org) is a
partner in the Toronto office; and
Laura Gavioli (email@example.com) is a member in
the Dallas office of Dentons, the principal global
correspondents for the tax disputes channel of