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  • Kaman Kwok Inc.

Important Points to Know About Cryptocurrency Transactions

What is virtual currency or cryptocurrency?

Virtual currency is a digital asset that can be used to buy and sell goods or services. Cryptocurrency is the type of virtual currency, which is not controlled by central banks or any country, and they can be traded in a relatively anonymous way.

Tax treatment of cryptocurrency for income tax purposes

Both in Canada and US, cryptocurrency is treated like commodity and any income from transactions generally treated as business income or as a capital gain and will need to be reported on your tax returns. There are various factors which determine the nature of income and these may include:

  • Intention of making a profit;

  • Acquiring capital assets or inventory;

  • Period of ownership;

  • Frequency of transactions;

  • Promotion of a product or service;

  • Knowledge of virtual currency market;

  • Time spent; etc.

Do taxpayers need to maintain books and records?

Taxpayer dealing with virtual currencies are advised to maintain following records. The below list is not exhaustive but are important details to note for your transactions:

  • Date of transactions;

  • Value of the cryptocurrency with the exchange rate records (if applicable);

  • Receipts of the purchase and sale;

  • Other costs associated with the transfer of the commodity;

Our team provided cross-border expertise on the reporting of these transactions correctly and minimize the tax implications for Canadian and US taxes. Please contact us for support in these or other cross-border tax related matters.

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