Lately there has been a lot of press coverage on Bitcoins and digital currencies. As a result, Bitcoins have been gaining in popularity as a legal means of exchange. This raises the question of what the tax consequences will be for individuals who use Bitcoins to buy and sell goods as well as individuals who buy and sell them as a commodity.
Even though the currency is not controlled by any central banks or country, according to the CRA the same tax implications apply to digital currencies as would for any other currency (ex. US dollars).
What this means is that if a business is paid for its services in Bitcoins, the rules for barter transactions will apply.
A barter transaction is defined as a transaction occurring between any two persons who agree to exchange goods or services and carry out that exchange without using legal currency.
For example, if a business is paid for its product or services in Bitcoins it would be required to include the Canadian value of the Bitcoins received in its income for tax purposes.
In addition, since Bitcoins can be bought and sold like any other commodity, if a taxpayer buys and sells Bitcoins any resulting gains losses from the purchase and sale of Bitcoins would be taxable to the taxpayer.
The information contained in this article is for general use only and should not be viewed as professional advice. Accounting and tax rules and regulations regularly change and individuals should contact a competent professional to obtain accounting and tax advice based on their specific situation.