Cryptocurrency for CPAs

Cryptocurrencies and new technologies like blockchain are shaping the future of business, finance and tax in Canada. But what does it mean for CPAs?

Digital currencies like Bitcoin and Ethereum are threatening the status quo. What was once only traded among in-the-know online financial communities can now be used to make purchases from an expanding list of vendors across the internet, as well as from many brick and mortar establishments. These new virtual currencies can even be used to buy equities or build an investment portfolio, and are outgrowing other asset classes like commodities or real estate.

The name cryptocurrency itself refers to the way these currencies operate: they’re anonymous, encrypted and decentralized, managed entirely through a peer-to-peer network that omits traditional forms of oversight for legal tender like a central bank. This gives control to a network of users instead, who confirm transactions using an automated digital ledger, or blockchain. Confirming transactions, also commonly known as “mining”, is how cryptocurrencies generate value.

If that sounds like a lot to take in, it is.

This unique shift in how we think about money – including how funds are created, spent or accumulated – is creating interesting challenges for global governments and tax authorities. In Canada, much of the debate focuses on how to account for cryptocurrencies, and whether virtual currencies should be taxed as a commodity or a currency under the eyes of the law. For the CRA, the answer is quickly evolving as the market itself changes. Right now cryptocurrencies are officially considered a commodity in Canada; however, current treatment largely depends on usage, i.e. buying and selling versus exchanging for goods and services.

As a CPA, you can take a lead in this new tax area by helping your clients or organization handle the tax challenges of cryptocurrencies, including when it makes most sense to treat them as:

  • a commodity in barter transactions that take place without using legal currency, which can result in the loss or gain of capital property or inventory
  • a unit of payment that must be translated into business income in Canadian dollars at the time of transaction, using a fair market value for the exchange rate
  • a variable type of transaction for investments and trades that may count as income or capital depending on the analysis of existing case law
  • an eligible gift that can be subject to charitable tax credit rules as a donation
  • or a taxable supply under GST/HST and QST, and the details of what governs collection and remittance

There’s potential for people to see astronomical returns from cryptocurrencies, but also an incredible amount of volatility as market caps plummet to new lows, parody altcoin currencies and the risks of cryptojacking bring credibility into question, and experts continue to debate the impact of blockchain.

What's indisputable, though, is that being able to navigate the complexity of virtual currencies provides a value-added opportunity for you to grow your practice. The better you understand cryptocurrencies now, the more effectively you'll be able to offer guidance on the new frontiers of money management for corporations and everyday Canadians.

Want to learn more about how digital transformation and new technologies are shaping the future of business and the Canadian CPA profession? Our upcoming professional development offerings can help you develop the strategic skills you need to stay ahead of the curve:

National Forum on Technology Solutions
In-person conference | May 28-29, 2018 | Up to 19 CPD hours
Optional workshop on May 30

How to Protect Your Organization From Cyberattacks
Virtual classroom | April 24, 2018 | 12 to 2 p.m. EST | 3 CPD hours

Introduction to Cybersecurity for CPAs
Online learning | 5 CPD hours