Digital Currency and the Tax System

The growth in the use of digital currency has been increasingly in the news over the past year as the price of the most well-known type of digital currency, bitcoin, has increased significantly and its use more mainstream. Bitcoin ATMs are now available in three Canadian cities (Vancouver, Toronto, and Ottawa) and certain online retailers now accept them as a payment method.

There are differing opinions on whether bitcoins represent a true currency – the only one not issued by a sovereign nation – or whether digital “currency” is better described simply as a transaction or payment system. Whichever the case, it is indisputable that the use of bitcoins, or any other digital currency, represents a potential revenue loss to the tax system.

The Canadian tax authorities have seemingly been quicker off the mark than their U.S. counterparts to recognize this new reality, as the Canada Revenue Agency (CRA) recently issued a fact sheet outlining its views and assessing policies with respect to transactions involving digital currency.

Ironically, the CRA’s assessing policy for transactions involving the newest form of currency or payment is the same as that which applies to the oldest such system: bartering. In the CRA’s view, where digital currency is used to pay for goods or services, the rules for barter transactions apply. By the CRA’s definition, a barter transaction occurs where any two persons agree to exchange goods or services and carry out that exchange without the use of legal currency.

In applying the rules governing barter transactions to those involving digital currency, the CRA will assess on the basis that where an individual sells a good or a service and receives digital currency as payment, the value of the good or service sold represents income to the seller, and must be included in the seller’s income for tax purposes.

Bitcoins, or other digital currency, is a commodity which can be bought or sold like any other. In such cases, the CRA’s assessing policy is that any resulting gain or loss on such commodity trading transactions would be a taxable event to the trader. Depending on the trader’s particular circumstances, income from trading in digital currency could create business income or a capital gain, while losses from such trading could create a business or a capital loss.

At this point, the CRA has not issued any technical interpretations or other publications dealing specifically with digital currency. The recently issued fact sheet, which can be found on the CRA website at, does, however, include links to existing CRA publications which may assist taxpayers in determining the tax implications of their digital currency transactions.