Principal Issue: [TaxInterpretations translation] What is the tax treatment of a cryptocurrency transfer?
Position: Question of fact. Probably a provision under 248(1) of the Act.
Reference to the Act: 248(1) of the Income Tax Act.
FEDERAL TAX ROUNDTABLE, NOVEMBER 2, 2023
APFF CONFERENCE 2023
10. Transfer of bitcoin
A taxpayer holds bitcoins in a cryptocurrency wallet for which he alone controls the private key.
In order to earn a return on his bitcoins, the taxpayer transfers them to an account offered by a centralized cryptoasset exchange and lending platform. In return for depositing the bitcoins with the platform, the latter offers the taxpayer a variable return of approximately 4% per year payable in bitcoin.
The terms of the contract applicable to the account held with the platform provide that the platform may hold the bitcoins in its own name and will have the right to pledge, sell, lend or otherwise transfer or use the bitcoins deposited in the account at its discretion without informing the taxpayer. The profit derived from the use of the bitcoins by the platform will be the property of the platform and not of the taxpayer. The terms of the contract also stipulate that the taxpayer may withdraw up to an equivalent of the balance in the bitcoin account balance at any time. The bitcoins to be surrendered at that time may be paid from a cryptocurrency wallet in which the bitcoins received from the platform’s various clients are collectively deposited.
Question to the CRA
For the situation presented, does the CRA consider that the transfer of bitcoins by the taxpayer to the platform will give rise to a disposition for purposes of the Income Tax Act (the "Act")?
CRA Response
The term "disposition" is defined in subsection 248(1) of the Act. This definition provides for various types of transactions that may or may not result in a disposition for purposes of the Income Tax Act.
Generally, the determination of whether or not an event, transaction or transfer related to cryptocurrencies constitutes a disposition must be made in light of all the facts, the relevant clauses of the contract and the applicable private law.
In this case, based solely on the few facts submitted, we are of the view that it is likely that ownership of the bitcoins initially belonging to the taxpayer was transferred to the platform. In fact, according to the facts mentioned, the platform acquired the right to use the assets, to make profits from them and to dispose of them at its discretion.
We are therefore of the view that it is likely that the taxpayer's deposit of his bitcoins with the platform constitutes a disposition for the purposes of the Income Tax Act.
Charles Dumas
November 2, 2023
2023-099364