After the taxpayer for a number of months had been trading on a daily basis in cryptocurrencies through an account held at a major cryptocurrency exchange platform, the platform went into bankruptcy on the discovery of fraud. All documentation relating to the daily transactions was on the platform, and the taxpayer no longer has access to that information. What documentation is necessary to support the taxpayer’s claim for loss? CRA responded:
In general, if an exchange ceases operations and the taxpayer is no longer able to access the necessary documentation and information, other documentation may help to demonstrate that the taxpayer had an account with the exchange, had a balance at the time the exchange ceased operations and/or suffered a loss. Although not an exhaustive list, those additional documents may include the following:
- Publicly available information regarding the fraud and/or bankruptcy of the exchange platform, such as articles in the media.
- Documents confirming the activation of the taxpayer's account with the exchange platform, such as "Know Your Client" documentation and any correspondence with the platform confirming account activation.
- Any contract signed between the taxpayer and the exchange platform.
- Documents supporting the commencement of the relationship between the taxpayer and the exchange platform, such as electronic transfers from the taxpayer's financial institution to the exchange platform (this includes bank statements to support the transfer of currency for use on the exchange platform).
- A copy of the claim for the amounts due filed with the exchange platform's trustee and any communication with the trustee acknowledging receipt of the claim and/or confirmation of the amounts due.
- Any proceedings initiated by the taxpayer to recover the amounts due, such as police reports and/or correspondence and documents showing that the taxpayer has initiated legal proceedings to recover the amounts due.
- In the event that the taxpayer carries on a business, documents demonstrating that any income and losses related to cryptocurrency transactions have already been declared for tax purposes.
- Documents demonstrating that the cryptocurrency held has not already been disposed of, such as tax return schedules showing that no capital gains or losses, or part thereof, have already been declared.
- Working papers demonstrating a precise calculation of the amount of the loss claimed.
- Any documentation relating to the recovery of amounts due or compensation to be received.
- Proof that the taxpayer has not sold his credit position to the exchange syndicate.