(Kitco News) – As countries around the world scramble to find sources of revenue amid mounting economic concerns, taxing the activities of crypto traders is increasingly becoming a point of focus, with Canada being the latest to initiate a crackdown on cryptocurrency tax cheats.
According to a report from the National Post, the Canada Revenue Agency is currently looking to collect CAD 54 million ($39.5 million) in unpaid crypto trading taxes. But, according to one lawyer, this figure is just a “drop in the bucket” in suspected unpaid taxes tied to cryptocurrency activities in fiscal year 2023-2024.
Sahil Behal, director general of CRA’s compliance branch, told the National Post that the agency has roughly 400 ongoing audits or examinations related to crypto assets in addition to the CAD 54 million that has already been reassessed.
“Fifty-four million, that’s pocket change,” said David Rotfleisch, managing partner of Toronto firm Rotfleisch and Samulovitch. “I’ve had multiple clients with multimillion dollar (crypto) issues … and I’m just one tax lawyer. That’s a small number.”
Rotfleisch, a veteran tax lawyer and cryptocurrency specialist, suggested the agency should focus more on educating the public about the tax obligations surrounding cryptocurrency transactions to help clear any confusion.
“Up until last year, maybe a bit before that, CRA had almost nothing on crypto at all. Crypto was a commodity, that’s it. They didn’t tell you how it’s taxed, that it needs to be taxed, you need to report it … zero guidance from CRA, and that played into it,” he said. “How are you supposed to know it’s taxable?”
Behal acknowledged this point, saying the agency knows there is much more work to be done to increase public awareness about tax obligations related to the emerging world of cryptocurrencies such as Bitcoin (BTC) or Ethereum (ETH).
The CRA commissioned a poll last year due to the “high level of ambiguity” surrounding crypto assets in Canada and found that one-third of respondents did not have a firm grasp of their tax responsibilities.
Most crypto users scored around 50% on their knowledge of tax regulations, and more than 10% believed that cashing out cryptos into government-issued currency was exempt from taxation.
For that reason, the 400 ongoing audits and examinations include 125 “intent to audit” letters CRA is preparing to send out to Canadians it believes did not report income obtained through trading activities on Coinsquare, Canada’s largest crypto exchange.
These taxpayers will have 45 days to contact the agency and declare any missing crypto-related income, Behal said. Doing so voluntarily will eliminate any penalties or interest payments due, but failure to respond within the allotted timeframe could result in a “full scope audit.”
“It’s one of these approaches we’re taking, recognizing that there’s a lot happening in this sector,” Behal said. “Canadians may be unaware of their tax obligations (and) to be able to better address the risk and support Canadians as well.”
He added that moving forward, CRA plans to change its compliance measures as the level of risk for non-compliance changes, but admitted the agency doesn’t have “dedicated numbers in terms of what the level of non-compliance in this sector may be.”
According to comments made by Cathy Hawara, CRA’s assistant commissioner for compliance, in front of the Senate finance committee last week, the letters were being sent to individuals the agency believed had unreported income after receiving a trove of transaction data from Coinsquare through a legal request called an Unnamed Persons Requirement (UPR).
“We’re leveraging data that we obtained from an UPR in relation to a particular crypto exchange and we’re starting to contact Canadian individuals who we believe engaged in transactions and didn’t report the income on their returns to encourage them to do so, all the way to leveraging our audit capacity … in the highest risk cases,” Hawara told senators.
CRA was able to use the Coinsquare UPO to compare existing taxpayer declarations to spot any discrepancies, Behal said, adding that the agency was considering issuing additional UPRs to other cryptocurrency exchanges until the government implements the Crypto-Asset Reporting Framework (CARF) in 2027.
That could help increase the CAD 54 million the agency is currently looking to collect.
“UPRs are litigious in nature,” Behal said. “We do want to be in a space where we can obtain more structured data directly from reliable sources, and the crypto asset reporting framework will get us there.”
Once CARF is implemented, crypto-asset service providers in Canada will be required to submit annual reports to the CRA, including information on the value of transactions involving cryptoassets and fiat currencies, exchanges between different cryptoassets and cryptoasset transfers, and client information such as full names, residential addresses, dates of birth, and taxpayer identification numbers.
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2024-05-10 20:04:37