Accountants (CPAs) in Canada are warning that taxation rules regarding cryptocurrencies will eventually be drive entrepreneurs away. The country, which has had an on and off relationship with cryptocurrencies may be on the way to trouble.
What’s happening in Canada?
Canadians have been flocking to cryptocurrencies and blockchains. In 2013, it became home to the first Bitcoin ATM in the world. The government also wanted to set new precedence and tax the coins. However, the nature of cryptocurrencies has left them perplexed. According to a recent survey, about 76% of Canadians are familiar with cryptocurrencies and adoption jumped by 25% between 2017 and 2018 alone.
The Canadian Revenue Agency (CRA) issued tax guidance on digital currencies about six years ago to avoid tax evasion. But these rules are creating more trouble than they sought out to fix in the first place. Finance Canada, which is trying to update tax rules applicable to cryptocurrencies, is highlighting these issues. It wants to categorize some cryptocurrencies as financial instruments.
The Canadian crypto tax code
The CRA considers cryptocurrencies as investment commodities. Users must report the “fair market value” of the coins before reporting their gains or losses. For instance, a person’s value of Bitcoin has doubled within a taxable year; they will have to pay tax on half of their capital gains. This sounds simple at first but gets complicated when goods-and-services (GST) and harmonized sales tax (HST).
Technically, buying and selling cryptocurrencies will be considered a barter transaction that could create problems of double taxation. This means that every time crypto changes hands, it could be subjected to GST/HST. Even the rates of this taxation, vary depending on the place of supply. A business needs to charge different rates from their customers in participating provinces and non-participating provinces.
Finance Canada suggests that cryptocurrencies should be classified as financial instruments under a new virtual payment instrument (VPI). They also suggest that VPI transactions should be free from GST/HST taxes. However, even their solution isn’t free from pitfalls. If cryptocurrencies are classified as financial instruments, all businesses dealing in cryptocurrencies will be registered as financial institutions which will impose a huge burden of responsibilities on individuals.
Accounting firm PwC Canada suggests that registering as a financial institution will
“result in changes to input tax credit (ITC) eligibility, additional apportionment, and annual reporting requirements, among other changes.”
The legal status of cryptocurrencies is still undecided in the country.
The post Canadian Revenue Agency (CRA) Guidelines May drive Away Entrepreneurs appeared first on InsideBitcoins.com.
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Author: Sherlock Gomes