If a Canadian taxpayer owns certain foreign property, the collective cost of which exceeds $100,000 CDN, the taxpayer must file a Form T1135 (Foreign Income Verification Statement).
The Canada Revenue Agency (“CRA”) recently provided its views on whether digital currency is considered “specified foreign property” under the reporting rules in section 233.3 of the Income Tax Act.
What is Digital Currency?
Digital currency is virtual money that can be used to buy and sell goods or services on the Internet, for instance, Bitcoins. Bitcoins are not controlled by central banks or any country, and can be traded anonymously. This specific form of digital currency can be bought and sold in return for traditional currency, and can also be transferred from one person to another.
In CRA Document No. 2014-0561061E5 “Specified Foreign Property” (April 16, 2015), the CRA was asked whether digital currency or interests in a foreign partnership holding digital currency are considered to be “specified foreign property.” The CRA responded to this question stating that yes, the above items are considered to be foreign property for the reason that “digital currency is funds or intangible property and “specified foreign property” includes funds or intangible property held outside of Canada.”
Not reporting income from domestic or foreign sources is illegal. Canadians should know that the CRA is very active in pursuing cases of non-compliance, in order to ensure that the tax system remains fair for everyone.
If you have digital currency and are looking to come forward to correct your tax affairs, the Voluntary Disclosures Program may be right for you. Don’t wait until it’s too late! Call Barrett Tax Law today and speak with a lawyer to see what steps you should take next in order to avoid penalties imposed by the CRA.