The Canada Revenue Agency (CRA), the government’s tax collection service, is reportedly auditing investors in cryptocurrencies like Bitcoin (BTC), Forbes reports on March 6.
Citing sources close to the matter, Forbes states that the CRA has sent extensive questionnaires to investors pertaining to their crypto-related activities in recent years. The questionnaires reportedly run 14 pages long with 54 questions and multiple sub-questions. The CRA told Forbes:
“In order to protect the integrity of our risk assessment systems, we cannot comment on the specific information or criteria we use to select files for audit.”
Per Forbes, the CRA is asking investors to clarify multiple points regarding their crypto investments, such how and through whom they purchased the assets and whether they use cryptocurrency mixing services or tumblers.
Another question reportedly asks whether investors have bought or sold assets on ShapeShift or Changelly — cryptocurrency exchanges which both allow users to trade assets without disclosing their real world identity.
The agency began taxing cryptocurrencies in 2013, and subsequently established a dedicated cryptocurrency unit in 2017 for collecting intelligence and conducting audits focused on crypto-related risks. While the CRA closely monitors crypto related activities, federal and provincial governments in Canada have created research and development tax incentives. The CRA said:
“The CRA’s enhanced efforts in this space stem directly from its broader Underground Economy Strategy, which includes a commitment to monitor emerging platforms and new business models, with a special focus on the sharing economy and digital currencies.”
Laura Gheorghiu, a tax partner at law firm Gowling WLG, previously told Cointelegraph that the CRA classifies cryptocurrencies as a commodity, making the exchange of crypto taxable as a barter transaction and making it taxable as business income or capital gains. Most Canadians must file their tax returns before April 30, while self-employed filers have until June 15.
As the April 15 deadline for tax filing looms in the United States, some companies are introducing new services that allow investors to more easily calculate taxes on their crypto holdings. In early February, tax preparation software TurboTax released a new version of its eponymous tax preparation software that allows users to import trading data directly from major exchanges, such as Coinbase, Gemini, and Poloniex.
Yesterday, Big Four auditing firm Ernst & Young launched a tool for accounting and preparing taxes on cryptocurrency holdings. The new tool called EY Crypto-Asset Accounting and Tax will allow both institutional and retail investors to calculate and prepare taxes on cryptocurrency holdings.
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