The CRA recently provided its views on whether digital currency, including Bitcoins, are considered “specified foreign property” under the foreign property reporting rules in section 233.3 of the Income Tax Act.
Under the foreign property reporting rules in the ITA, if a Canadian taxpayer owns certain foreign property the aggregate cost of which exceeds $100,000 CDN, the taxpayer must file a Form T1135 on which the amount of “specified foreign property” is reported. “Specified foreign property” is defined in subsection 233.3(1) to include certain tangible or intangible property held outside Canada (subject to several exceptions – i.e., that the property is not held or used exclusively in carrying on an active business).
In CRA Document No. 2014-0561061E5 “Specified Foreign Property” (April 16, 2015), the CRA was asked whether digital currency or an interest in a foreign partnership holding digital currency are specified foreign property.
The CRA stated that, in its view, digital currency would be funds or intangible property, and would be specified foreign property if situated, deposited or held outside Canada and not used or held exclusively in the course of carrying on an active business.
Further, an interest in a partnership that owns or holds specified foreign property would itself be specified foreign property unless the partnership was a “specified Canadian entity” (i.e., a partnership wherein the total of all non-resident members’ shares of the income or loss of the partnership for the fiscal period is less than 90% of the total income or loss of the partnership for the period).
The CRA stated that, in this case, the digital currency would likely be specified foreign property and the partnership interest would be specified foreign property of the Canadian corporate owner.
This is helpful guidance from the CRA on the tax treatment of digital currency and a reminder of the many tax issues that arise in respect of digital currency and the reporting of foreign property.