Article

Rebooting Money: The Canadian Tax Treatment of Bitcoin and Other Cryptocurrencies

Author: John J. Lennard

Bitcoin is widely regarded as the world’s first decentralized digital currency, or “cryptocurrency.” Bitcoin, like many cryptocurrency systems, operates via a peer-to-peer network that is independent of any government, central authority, or bank. All functions, such as the issuance, or “mining,” of bitcoins and the processing and verification of transactions, are managed collectively by this network. In addition to mining, the network’s typical activities include the trading of bitcoins and the provision of exchange facilities whereby parties trade bitcoins for more established currencies, such as the Canadian dollar. Bitcoins may also be held as an investment or used to pay for goods or services; indeed, there already exist worldwide a number of retail outlets that accept payment in bitcoins.

Cryptocurrency systems such as Bitcoin are an emerging area, and the determination of their legal and regulatory status is ongoing. In Canada, regulatory agencies such as the Canada Revenue Agency have recently stated that Bitcoin and other cryptocurrency systems should not be characterized as “money” or “currency” for Canadian purposes. The authors challenge this basic view by undertaking a legal and historical analysis of the concepts of “money” and “currency” and by reviewing a number of Canadian income tax and indirect tax issues that may arise in the context of the Bitcoin system. Considering the unique policy challenges prompted by these innovations, the authors conclude that pre-emptive legislative intervention is needed to achieve a more predictable administration of tax rules that may apply to Bitcoin-based transactions.

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