Bitcoin
Canadian Tax Scams Beware: The CRA Is on the Hunt
(Kitco News) – As countries around the world struggle to find sources of revenue amid growing economic concerns, taxing the activities of cryptocurrency traders is increasingly becoming a point of focus, with Canada being the latest to launch a crackdown on cryptocurrency tax fraud.
According to a report from the National Post, the Canada Revenue Agency is currently seeking to collect CAD 54 million ($39.5 million) in unpaid taxes on crypto trading. But according to one lawyer, this number is just a “drop in the ocean” in suspected unpaid taxes linked to cryptocurrency activities in the 2023-2024 tax year.
Sahil Behal, director general of the CRA’s compliance branch, told the National Post that the agency has around 400 ongoing audits or examinations related to crypto assets, in addition to the 54 million CAD that has already been reassessed.
“Fifty-four million, that’s chump change,” said David Rotfleisch, managing partner of the Toronto firm Rotfleisch and Samulovitch. “I’ve had several clients with multi-million dollar (cryptocurrency) issues… and I’m just a tax lawyer. That’s a small number.”
Rotfleisch, a veteran tax lawyer and cryptocurrency expert, suggested that the agency should focus more on educating the public about the tax obligations surrounding cryptocurrency transactions to help clear up any confusion.
“Until last year, maybe a little before that, the CRA had almost nothing on cryptography. Crypto was a commodity, that’s it. They didn’t say how it’s taxed, that it needs to be taxed, you need to report it… no guidance from the CRA, and that contributed to that,” he said. “How will you know it’s taxable?”
Behal acknowledged this point, saying the agency knows there is much more work to be done to raise public awareness about tax obligations related to the emerging world of cryptocurrencies like Bitcoin (Bitcoin) or Ethereum (ETH).
The CRA commissioned a survey last year due to the “high level of ambiguity” surrounding crypto assets in Canada and found that a third of respondents did not have a firm understanding of their tax responsibilities.
Most cryptocurrency users scored around 50% on their knowledge of tax regulations, and more than 10% believed that withdrawing cryptocurrencies in government-issued currency was exempt from taxation.
For this reason, the 400 ongoing audits and examinations include 125 “intent to audit” letters that the CRA is preparing to send to Canadians it believes have not reported income earned through trading activities on Coinsquare, the largest cryptocurrency exchange. from Canada.
These taxpayers will have 45 days to contact the agency and declare any lost crypto-related income, Behal said. Doing so voluntarily will eliminate any penalties or interest payments due, but failure to respond within the allotted timeframe may result in a “full scope audit.”
“It’s one of those approaches we’re taking, recognizing that there’s a lot going on in this sector,” Behal said. “Canadians may not be aware of their tax obligations (and) being able to better manage risk and also support Canadians.”
He added that going forward, the CRA plans to change its compliance measures as the level of default risk changes, but admitted that the agency does not have “dedicated numbers in terms of what the level of default might be in this sector”. .”
According to comments made by Cathy Hawara, CRA’s assistant compliance commissioner, before 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 the Unnamed Persons Requirement (UPR).
“We are leveraging the data we obtained from a UPR regarding a specific cryptocurrency exchange and are beginning to contact Canadian individuals who we believe are involved in transactions and have not reported income on their returns to encourage them to do so , even leveraging our audit capacity… in cases of greater risk”, Hawara told the senators.
The CRA was able to use Coinsquare UPO to compare taxpayers’ existing returns to detect 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.
This could help increase the 54 million CAD the agency currently aims to raise.
“UPRs are litigious in nature,” Behal said. “We want to be in a space where we can get more structured data directly from trusted 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 crypto-assets and fiat currencies, exchanges between different crypto-assets and transfers of crypto-assets, and customer information , such as complete information names, home addresses, dates of birth and taxpayer identification numbers.
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