Revenue Canada says BitCoins aren't tax exempt

[alp227]

Source: CBC

Just in time for tax season, the Canada Revenue Agency says the users of Bitcoins will have to pay tax on transactions in the upstart digital currency.

BitCoins are a fringe online currency that entered the mainstream this year after speculators rushed in and caused their value to more than quadruple in value. Originally designed as a virtual currency alternative to conventional money, the cash value of a BitCoin jumped from under $50 US to above $250 and back earlier this month, as speculators flooded the market after awareness of them grew.

Price swings like that mean some BitCoin buyers and sellers likely made or lost a lot of money, which raises the question of how that will be handled come tax time.

The issue is not just academic. Saskatoon realtor Paul Chavady said he has listed a house priced in BitCoins, and has found clients willing to pay his fees in the electronic currency.

Read more: http://www.cbc.ca/news/canada/story/2013/04/26/business-bitcoin-tax.html

[Posteritatis]

1. Currency's currency. (nt)

[Ruby the Liberal]

2. How will they know?

Bitcoins are anonymous.

[DeSwiss]

3. Exactly.

- Screw-you Mr. Taxman!!!!

[Ruby the Liberal]

4. I am not promoting not paying taxes

The point was that there is no way of tracking bitcoin purchases to prove they were made.

Like cash at a garage sale.

[reACTIONary]

11. It is more transparent than cash at a garage sale...

... each transaction is recorded on-line, publicly, and can be viewed at any time, by anyone, anywhere in the world. The transactors are identified by identification numbers. If the "owner" of the identifier is publicly known, for instance, from emails or web sites where the number has been communicated, then it is easy to track every exchange that person has made, from day one.

This sort of discovery can be done through passive investigation. An active approach can be taken where an investigator engages in a few transactions just to gain information. That can then be used to unravel further transactions in the public record.

[Ruby the Liberal]

16. Okay, so if this is the holy grail of the conspiracy and privacy loons

then what is the upside?

[reACTIONary]

22. Conspiracy and privacy loons get a kick...

... out of "sticking it to the man" and participating in a scheme to "destroy civilization as we know it".

In other words, it's simply fantasy entertainment.

[DeSwiss]

25. ....

“It is no measure of health to be well adjusted to a profoundly sick society.”
~Krishnamurti

[joshcryer]

5. You got to turn them into cash somehow.

They are only useful for purchasing illicit stuff. Once you change them for cash, that's the point where their anonymity is meaningless.

[Ruby the Liberal]

6. I don't even know how you buy them

Max Keiser is the one who created them and has been promoting them - and the video of him the day they crashed is hilarious. Dude's skin was positively grey.

Other than his involvement and the anonymity factor - I know nothing about them.

[joshcryer]

7. Yeah, I mean, you have a point, of course.

You buy them from an exchange like Mt.gox: https://mtgox.com/

Or you can "farm" them by building a rig that allows you to do the calculations necessary to bring one into existence (as it stands now the electricity required to do the calculations isn't worth it).

Either way, when you sell them to an exchange like Mt.gox the paper trail begins, and that's where the IRS or the tax people will be able to see the transactions. ie, you got a deposit in your checking account of $1,500...

Obviously though they can't track actual bitcoin transactions, and if you used bitcoins for everyday life, then you'd never have to pay taxes, but it's not that easy because their primary use is selling drugs on the Silk Road.

[Ruby the Liberal]

8. How does the cash get to the seller?

Credit Cards?

I have asked this question elsewhere (how does it work) and nada in response.

[joshcryer]

13. They would cash out using an exchange.

Or alternatively they would continue dealing in bitcoins to hoard them.

Once they cash out though the money is traceable.

However, what's important to the dealers is plausible deniability. "I farmed X bitcoins back in the day and finally cashed out." It'd be hard to prove otherwise.

But the IRS man would still be able to say "That is taxable income."

[reACTIONary]

9. Bitcoins are no more anonymous than is ...

... cash, and actually, less so. Every transaction is posted on line and can be viewed by anyone, at any time. If you and your trading partner aren't careful, anyone can find out what you transferred or received from anyone else, from anywhere in the world.

But above and beyond that, the bitcoins themselves are basically useless unless turned into a national currency. Once that occurs, they enter the normal accounting system and can be audited. Just like any "off the book" transaction. And not any more legal.

[Ruby the Liberal]

10. Er, seriously?

Like Username, transaction date, amount?

[reACTIONary]

12. Yes, seriously...

... the "username" is a long string of letters, and the "username" of both parties to the transaction are encoded in a transaction log on-line. Anyone can view it, and there are tools that make it possible to create "transaction networks" so you can follow the money from one "username" to another. All the way back to the beginning.

Given a clue as to who, in real life, owns a particular "username" it is possible to trace every transaction. Clues can come from postings on web sites, web sites themselves, as when someone solicits business and provides a "username" in order to receive payment, an email that has been intercepted, or through financial records at the exchanges that market the bitcoins and receive payment from someone in real national currency.

[joshcryer]

15. That sets up an identity and yes you can trace it.

Transactions have been traced before to threaten cheaters to pay up, but that only works if said cheaters don't anonymize their IP and allow other information out in the wild (such as a picture of their house, their car, themselves, a username linked to a hotmail account or whatever). If they present themselves as nothing but the wallet hash, which is randomly created, then no one will be able to figure out who they were or even what the transaction was for.

[reACTIONary]

19. Until a G-man shows up with a subpoena. (NT)

[Ruby the Liberal]

18. It seems easier to buy a money order from the 711

noting that there is no recource with that - the money is gone once the MO is purchased.

[reACTIONary]

21. Yep, agreed. AND...

... the money order could circulate as a cash substitute. And since that is the case, it could serve as a store of value, to the extent that the cash does.

[joshcryer]

14. The wallet hash is completely random.

Yes you can trace the IPs but that's where Tor comes in.

In theory yes, a transaction would be followed from start to finish, but the Silk Road, where most transactions occur, is completely anonymous.

[reACTIONary]

17. It is only anonomous if you take precautions...

...not to let your "completely random number" be associated with you in any way. Like. for instance, providing it to a complete stranger along with your mailing address, in order order to complete an illegal transaction for an illegal substance that is then delivered by a government enterprise right to your front door.

Anytime the government wants to clean that up, it shouldn't be too hard.

[joshcryer]

23. Absolutely true.

This is the case with any attempt at anonymity though.

[reACTIONary]

24. You are right. It isn't bitcoin...

...it is that commercial transactions, regardless of media, are social interactions, and social interactions are never completely anonymous. There is always someone else involved.

[Sgent]

20. This is true in the US as well

the tax is on anything of value. Now, you might be able to treat it as a foreign currency transaction (which has some tax benefits) for the changes in value of bitcoins; however, any revenue received as part of a bitcoin transaction should be reported just like any other revenue.

One thing to point out -- in the US even barter's are taxable transactions, so if I trade you my comic books for your baseball card, the IRS considers it a cash transaction for cash purposes, and assigns a value based on the fair market value of each.

[quadrature]

26. prices in bitcoin... are higher or lower than cash

somewhere, there is a bitcoin to dollar exchange.
so there is always a bitcoin to $ rate.

.........for a face to face transaction,
do purchases with bitcoin tend to
cost more or less than cash?