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Barter and Cryptocurrency Transactions

Crypto and BarterTransactions Can Result in Taxable Income, and PST and GST/HST Payable

What are the Tax Implications of Barter or Crypto?

What is a Barter Transaction?

Provider of Bartered Goods or Services

Recipient of Bartered Goods or Services

Example of Barter Transaction

Bartered Goods That are Capital Property or Certain Other Assets

In Kind Donations by a Business to a Non-Profit Organization (NPO)

Tax Implications of Cryptocurrency Transactions

Cryptocurrencies and Exchange-Traded Funds

Report Your Cryptocurrency Income!

Cryptocurrency Mining and GST/HST

Canada Revenue Agency (CRA) Resources

Quebec Revenue Ministry Resources

Other Cryptocurrency Resources

Crypto and BarterTransactions Can Result in Taxable Income, and PST and GST/HST Payable

Do you trade goods or services which you would normally sell in the course of your business? Have you started using Bitcoin or other cryptocurrencies for transactions, or investing in cryptocurrencies? Bitcoin and other virtual currencies are treated as a financial instrument for GST/HST purposes, so no GST/HST is collected on a supply of the currencies. However, there can still be sales tax implications.

See CRA's GST/HST Notice 324 - Mining Activities in respect of Cryptoassets

What are the Tax Implications of Barter or Crypto?

If a transaction would have tax implications if money changes hands, it will have the same tax implications if it is a barter or cryptocurrency transaction. These transactions may result in taxable income or tax-deductible expenses. They may be considered dispositions of capital property, eligible capital property, personal-use property, listed personal property, or inventory, each of which has a different tax treatment.

What is a Barter Transaction?

A barter transaction occurs when two people or entities agree to trade goods or services without any money changing hands. When this occurs between people dealing with each other at arm's length, the value of the goods or services is deemed to be the value that would have been obtained for those goods or services in a regular cash transaction.

Provider of Bartered Goods or Services

When a person provides bartered goods or services which would normally be sold by him in the course of his business or profession, the value of those services must be included in income. If the person is a GST registrant, then GST would have to be remitted on the income. The value of the bartered services is included in income when determining if the person has reached the threshold of income where he must become a GST registrant. Provincial sales taxes may also apply.

Recipient of Bartered Goods or Services

When a person receives bartered goods or services which would normally be purchased in the course of his business or profession, the value of those services can be claimed as costs to the business. If the person is a GST registrant, then an input tax credit could be claimed, if the provider of the goods or services is a GST registrant.

Example of Barter Transaction

Mr. X is in the construction/renovation business, and is a GST registrant.
His friend, Mr. A, is a physiotherapist, and is not a GST registrant.
Mr. X does some renovation work for Mr. A. He would normally charge $500 plus GST of $25 for this work.
Mr. A provides physiotherapy services valued at $525 for Mr. X.
Mr. X must include $500 in his business income.
Mr. X must remit GST of $25.
Mr. X can include the cost of physiotherapy, $525, as a medical expense for purposes of the medical expense tax credit.
Mr. A must include $525 in his physiotherapy income.
If the renovation work was to Mr. A's business office, Mr. A can claim the $525 as either capital costs or expenses of his physiotherapy business.
If the renovation work was to Mr. A's home and not related to business, he cannot claim the costs.

Bartered Goods That are Capital Property or Certain Other Assets

When a person receives or provides bartered goods which are capital property, personal-use property, eligible capital property, listed personal property or inventory, the value of the goods is deemed to be the value that would have been obtained for those goods or services in a regular cash transaction. The person receiving the goods would use this value as the adjusted cost base of the goods for tax purposes. The person providing the goods would use this value as the proceeds of disposition, in order to calculate the income or capital gain.

In Kind Donations by a Business to a Non-Profit Organization (NPO)

See the March 2020 Video Tax News video, which discusses how these donations could be considered barter transactions, so instead of just being deductible expenses, the business may be required to include the value of the donation in income, with sales tax implications.

Tax Implications of Cryptocurrency Transactions

When a person buys and sells cryptocurrency for the purpose of making a profit, this also has tax implications, resulting in either income or capital gains. Cryptocurrency is considered a commodity which can be bought and sold, and profit or loss would be either an income gain or a capital gain.

See IT-479R Transactions in Securities (Archived), paragraphs 9 to 32, which discusses how to determine whether the profit is an income gain (100% taxed) or a capital gain (50% taxed).

Tax Tip:

If a barter or crypto transaction has tax implications, invoices should be provided to record the transaction.

Cryptocurrencies and Exchange-Traded Funds

Cryptocurrencies such as Bitcoin are new enough that there are no tax laws dealing with them specifically. CRA has expressed views on them - but these are just opinions, not law, and have not been tested in a court of law.

David Rotfleisch, CPA, JD, Canadian tax lawyer, has written Taxation of Bitcoin ETFs which may be helpful to you. He has also written Victim of Cryptocurrency Scams Marketed as "Invstments"? There May Be Income Tax Deductions From CRA - Guidance From A Canadian Crypto-Tax Laywer.

Report Your Cryptocurrency Income!

Trying to hide your crypto or any other taxable income from the Canada Revenue Agency is never a good idea, and can lead to criminal charges. See the Advotax Law article What the CRA already knows or may learn about your crypto portfolio by Anna Malazavhavaya, Tax Lawyer.

Tax Tip:

Don't try to hide income from Canada Revenue Agency (CRA), because you could be charged with a criminal offence!

Cryptocurrency Mining and GST/HST

Most people who are investing in crypto are not "mining" it, which is another activity related to crypto. For more on this topic see Cryptocurrency mining and GST by John Oakey, CPA, CA, TEP, CC, National Tax Director for Baker Tilly Canada.