How to minimize the cryptocurrency tax burden this tax season – Canadian Lawyer Magazine

What is more advantageous from a tax point of view is to have capital treatments, Rotfleisch explains. But you have a risk of the CRA saying, no, this is not capital, this is income, you've got twice the tax liability of what you reported, and we're going to hit you with gross negligence penalties.

As business income is fully taxable while only 50 per cent of capital gains are, he dives into clients cryptocurrency earnings and clarifies what looks like the former and what is defensible as the latter. He builds in a series of memos defending the capital gains claims in case the CRA comes calling.

Absent our analysis, the CRA would come in and take a look at the whole portfolio, Rotfleisch said. They would see some you bought some Bitcoin yesterday, you sold it today. One clear income account and they're going to [tax] everything as an income account. They're not going to go into detail.

Cryptocurrencies (or cryptos) are digital assets, designed to function as a decentralized medium of exchange protected by cryptography rather than a state guarantee. More than 2,000 different cryptos exist, including Bitcoin, Ethereum, Ripple and Litecoin. In late 2017 Bitcoin, which Rotfleisch says is a consistent indicator of overall cryptocurrency value, peaked at around US$20,000. It has since fallen to around US$10,000 but remains volatile.

The CRAs guidelines for cryptocurrency taxation emanate from a key premise: cryptos are a commodity, not money. Rotfleisch accepts this is fair. Cryptos like Bitcoin often behave more like gold, with wildly fluctuating values, and still arent widely acceptable as a medium of exchange. Though that is changing slowly, for the moment he thinks its not worth challenging the CRAs base premise, which leaves smart filing as the best means for a tax lawyer to protect their client.

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How to minimize the cryptocurrency tax burden this tax season - Canadian Lawyer Magazine

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