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Personal Income Tax  ->  Filing Your Return  ->  Barter and Bitcoin Transactions

Barter and Cryptocurrency Transactions

These 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?  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.

If a transaction would have tax implications if money changes hands, it will have the same tax implications if it is a barter or Bitcoin 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.

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.

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 registrantProvincial sales taxes may also apply.

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:

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

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.

When a person buys and sells Bitcoins for the purpose of making a profit, this also has tax implications, resulting in either income or capital gains.  Bitcoin 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).

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 Tips:

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

Don't try to hide income from Canada Revenue Agency (CRA), because a person with a grudge can report you very easily!

Other Cryptocurrency Resources

Bitcoin.org

CBC: This man owns $321M in Bitcoin - but he can't access it because he lost his password

CBC: Bitcoin mining uses more energy than mining for real gold

What the CRA already knows or may learn about your crypto portfolio - by Anna Malazhavaya, Tax Lawyer

coinberry Crypto Taxes Canada - Learn about the taxpayer responsibilities of Canadian crypto investors.

Canada Revenue Agency (CRA) Resources

CRA Guide for cryptocurrency users and tax professionals

What you should know about digital currency (Archived)

IT490 - Barter transactions (Archived)

GST/HST in special cases - includes information on barter transactions and barter-exchange networks.

Report suspected tax evasion

Quebec Revenue Ministry Resources

Virtual Currency

Completing your income tax return - Line 24 - Virtual Currency

Revised: July 22, 2021

 

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