Principal Issues: Whether the CRA will issue guidance on when cryptocurrency is considered situated, deposited or held outside of Canada for foreign reporting requirements pursuant to section 233.3 of the Act.
Position: The question is currently under review by the CRA.
Reasons: Awaiting for the OECD to complete work on developing a cryptocurrency reporting framework that provides for the exchange of information on cryptocurrency transactions.
2022 International Fiscal Association Conference
CRA Roundtable
Question 7 - Compliance requirements for taxpayer owning cryptocurrencies and situs of cryptocurrencies.
Section 233.3 of the Income Tax Act (the “Act”) imposes the requirement for a “specified Canadian entity” to disclose its ownership of any “specified foreign property” on CRA form T1135 - Foreign Income Verification Statement. This obligation generally arises in respect of a taxation year if the total cost of such property exceeds $100,000 at any time during that taxation year. “Specified foreign property” includes (among other things) “funds or intangible property, or for civil law incorporeal property, situated, deposited or held outside Canada.”
In a technical interpretation issued in April 2015 (CRA document no. 2014-0561061E5), the CRA took the position that cryptocurrency constitutes funds or intangible property and would be specified foreign property of a person or partnership to the extent that it is situated, deposited or held outside of Canada and is not used or held exclusively in the course of carrying on an active business.
In the context of the 2021 APFF Financial Strategies and Instruments Roundtable held on October 7, 2021, the CRA was asked to provide its view on the situs of cryptocurrency (CRA document no. 2021-089602). At that time, the CRA responded that the question of where a cryptocurrency is located, deposited or held within the meaning of section 233.3 of the Act was under review.
Could the CRA provide an update?
CRA Response
The question of where a cryptocurrency is located, deposited or held within the meaning of section 233.3 of the Act is still under review by the CRA.
In parallel, work is underway at the Organisation for Economic Co-operation and Development (the “OECD”) to develop the Crypto-Asset Reporting Framework (the “CARF”), a standardized package that will include reporting requirements to tax administration and exchange of information procedures related to taxpayers’ transactions with crypto-asset service providers. A public consultation process on the CARF was initiated on March 22, 2022 and closed on April 29, 2022. A public consultation meeting will be held at the end of May 2022. More information can be found on the OECD website.
The CRA Guide for cryptocurrency users and tax professionals provides general guidelines explaining to Canadian taxpayers their tax obligations in respect of cryptocurrency (footnote 1) . In particular, taxpayers engaging in crypto-asset transactions are required to keep proper financial records of all their activities, including records related to the acquisition or disposition of crypto-assets. Subsection 230(1) of the Act specifically requires taxpayers to maintain records and books of accounts, in such form and containing such information as will enable the determination of taxes payable under the Act. Pursuant to paragraph 231.1(1)(a) of the Act, the books and records of a taxpayer may also be inspected, audited or examined by an authorized person of the CRA.
The CRA conducts audit activities related to crypto-assets, including audits of individuals acquiring and disposing of crypto-assets as well as crypto-asset businesses involved in developing, mining, staking, or effectuating the exchange of crypto-assets.
Sophie Larochelle
2022–092645
May 17, 2022
FOOTNOTES
Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:
1 For details, go to canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/compliance/digital-currency/cryptocurrency-guide.