Canada is not planning to change the existing tax rules to deal with cryptocurrencies and does not have any plans to overhaul cryptocurrency industry. This is according to the country’s Finance Minister Bill Morneau speaking on the sidelines of the World Economic Forum in Davos.
He said Bitcoin’s tax treatment is not unique in any way in the country. The country is, instead, focusing on the risk that could arise from the use of cryptocurrencies.
“The main focus on Bitcoin is “making sure that we understand what’s going on underneath that market. Since to make sure that we aren’t introducing any risks into our economy. It is whether they be risks like money laundering or terrorist financing”.
The current tax rules in Canada treat Bitcoin as a commodity. Profits are treating as either capital gain, and half of it taxed or as a fully taxable income same as salary. This depends on the facts and circumstances of a particular taxpayer.
Some say the current law is not sufficient to deal with the matter. This is because it lacks specificity such as whether sale taxes should be applied. It also does not specify when should income from Bitcoin be recognizing, how mining should be manageable. It is whether foreign reporting should be in use to Bitcoin dealings.
Laura Gheorghiu, a partner at law firm Gowling WLG, told Bloomberg,
“They think that the current tax regime, tax system, effectively addresses this new technology. It becomes evident pretty quickly that it’s not enough and people are struggling to figure out how they should be reporting these transactions”.
The rules treat purchases not as currency but as though someone bartered one right for another. Exchanges are processes as taxable events. However, one area of misunderstanding is when an investor can’t pay tax with Bitcoin or how to report exchanges. For instance, some swaps take place very fast. Although it is voluntary to say or disclose such at the moment, rules for disclosure will be more stringent come March 1.
Other controversies include valuation of new forks and whether crypto assets will be subject to separate reporting requirements for assets. Thus, when they exceed one hundred thousand Canadian dollars.
Complexities also remain with how to identify taxpayers for taxation given the nature of cryptocurrency trades. Moreover, continued usage of cryptocurrency might, for instance, reduce seigniorage revenue available to the Bank of Canada from the government revenue.
However, some feel that the current general rules are adequate.
David J. Rotfleisch, a tax lawyer with Toronto-based Rotfleisch & Samulovitch PC said,
“There’s no need for special rules. It would probably be helpful to the general public to come out and say, but the general rules apply”.