Searching for Clarity in a World Obsessed with Cryptocurrency
August 23, 2018
Bitcoin was introduced into the global market in 2009 and changed the way we conduct business forever. Before the era of the blockchain, all currencies were controlled by banks and the government, with each transaction subject to an array of fees. Cryptocurrency disrupts markets by existing independently from traditional financial institutions.
Instead of shuffling cryptocurrency through banks, blockchains settle accounts in real time. These transactions are anonymous and all but fraud-proof. And instead of a government deciding to print more bills, more cryptocurrency is generated when individuals or companies “mine it”. That is, when they solve complex equations to validate transactions that are happening live on the blockchain.
But while Bitcoin may be the first—and the most valuable—cryptocurrency, it has a finite supply and faces competition. In recent years, other cryptocurrencies, such as Ethereum, have emerged and gained traction. Whatever the case, one thing is clear: cryptocurrency is becoming increasingly more popular and mainstream.
So what does this mean for the average Canadian business?
- If you accept cryptocurrencies for services rendered, you must understand that you are NOT tax-exempt. The CRA defines cryptocurrency as a commodity (like gold or silver). As such, it is governed by the section of the tax code that applies to barter and trade transactions.
- Like any commodity, you must determine the dollar amount that you would have charged for your services when you accepted the cryptocurrency. For example, if you usually charge $300 per hour, you must use the same rate on your tax return—even if you are compensated by different means.
- To assign dollar value to cryptocurrency transactions, you must use the exchange rate on the day the transaction took place. Unfortunately, anyone who follows the crypto markets knows that the minute-to-minute fluctuations of these currencies can be extremely volatile. Luckily, tools such as the Canadian Bitcoin Index make it easy to check the exchange rate on any particular day.
- If you sell cryptocurrency holdings, you must convert the value into Canadian dollars and declare any capital gains. Plus, if you pay an employee using cryptocurrency, you must also convert the payment to Canadian dollars based on the exchange rate on the day the payment is made.
If you’re unsettled by crypto, you’re not alone.
While cryptocurrencies offer many distinct advantages, the truth is we are still in uncharted waters. Any Canadian business operating in the cryptocurrency space should proceed with caution and ask for help when it comes to risk management.
At PROLINK, some of our clients include: large cryptocurrency investment funds, start-ups interested in paying their subcontractors using crypto, and even traditional businesses that are looking to ensure they have access to cryptocurrency should they ever become the subject of a ransomware attack. We can help you navigate the changing crypto landscape with a clear view of the associated opportunities and risks on the horizon.
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