Individuals have the freedom to use, just like any other methods of payments, a virtual currency. Bitcoin and Ethereum can be traded at any time using an exchange platform such as Coinbase. In addition, you can simply barter without having to resort to our financial system. However, there are many risks associated with these virtual currencies. You must remain vigilant and on the lookout for the rules that will follow.
We know of digital currency (or Cryptocurrency) as a medium used to either buy or exchange goods and services. In addition, these digital currencies have become popular in the financial market community because it allows investors to speculate on the future value of this asset.
However, this new currency remains a technological innovation whose original goal was the free exchange of capital without government supervision. Crypto currency remains speculative & volatile as a whole and individuals are not immune from Tax Agencies when it comes to their financial transactions.
The tax man is looking
According to the tax authorities, virtual currency is an asset that is part of our heritage. It is not considered a currency or monetary currency. It is considered a medium of exchange that allows the consumption of goods or services. However, certain operations, transactions or exchanges may have tax consequences.
If you have multiple transactions, you may be operating a business as per our tax agencies. Your income will be fully taxed, and you are required to collect and remit GST / HST and QST according to the rules in force.
If it is considered that you are not carrying on a business, your transactions may be characterized as capital gains or losses. In all cases, it is imperative to keep records to support your transactions for a period of six (6) years.
Virtual currency is based on blockchain technology. The operations carried out by said «Miners» are extremely complex. The volatility of financial instruments, which trade cryptocurrency as an underlying value, remains highly speculative and can create considerable losses. Finally, the lack of transparency and regulation of this asset can invite illegitimate actors in our society to engage in their fraudulent activities. Unfortunately, legal remedies, including case law, are virtually non-existent.
A never forgotten methaphor
I remember when I started in finance many years ago, a very wise man told me: « […] Luc, when mutual funds companies start launching their theme base funds, run for the hills […] ». I’ve never forgotten his advice, although at first, I just thought he was pasted his time. Sadly, it took the beginning of a good technology wreck in 2000-2001 to realize he was right.
In short, they’ll say that this time is different, It’s not. It’s the latest « flavor » of the year. As it stands right now, the big four mutual fund companies have all gotten into the «crypto-game». For those who’ve already benefited from this run, your entry point will determine your profits. One small piece of advice, don’t let a tax decision dictate an investment decision.
For the rest of us: put your « chips » on red 31, roll the dices and let the games begin. Should be a fun trip at Casino Lac Leamy folks.