Of all the issues confronting Manning Elliott, cryptocurrency is arguably the most challenging due to the taxation authorities and regulators being unsure of how to treat it.
A most challenging issue as regulators and authorities are unsure of how to treat this
Courtesy Manning Elliott LLPFernando Costa, partner at Manning Elliott, is well aware of the cryptocurrency craze sweeping the business world: “It’s been on our radar for a little over a year, and we have seen some of our public company and personal tax clients become involved with it,” he says.
Bits of computer code assigned a monetary value is a concept that was invented in 2009 and has evolved into more than 1,300 cryptocurrencies available worldwide today.
There are some issues with the craze, but the biggest is that it still isn’t recognized as currency in North America. And yet, some segments of the business population are behaving as if it were, case in point: the recent example of a Vancouver Island couple who are willing to sell their Qualicum Beach home for $2.78 million in a transaction that could see the buyer sending Bitcoin from his or her cryptocurrency exchange, which would presumably be converted into dollars in the sellers’ exchange.
Of all the issues confronting Manning Elliott, cryptocurrency is arguably the most challenging due to the taxation authorities and regulators being unsure of how to treat it. “There’s no precedent for us to draw on,” says Costa. “However, while we don’t take a position on cryptocurrency one way or another, we acknowledge areas of concern.”
Costa points out that banks are equally wary of the cryptocurrency revolution. “I know of one person who received $20,000 via a Bitcoin transaction that was perfectly above board, but when he tried to bank it, the bank took exception to the source of the funds, and he was given one month to take his business elsewhere,” he says. “The financial institutions have tried to steer clear of cryptocurrency due to the potential problems in tracing the funds and the fact that the governments have not clearly defined what cryptocurrency is.”
Taxation is another concern Costa says people should consider. “The tax laws regarding bit coins are in flux, but we know two things: our federal government recognizes cryptocurrency as a barter transaction, and therefore all transactions have to be consummated at fair value. But determining what that fair value is may be easier said than done.
“Also, the taxing authorities say they will determine the income tax consequences of the income on a case by case and fact by fact basis. This is also due to uncertainty of Bitcoin’s compatibility in our financial system.”
Yet another consideration: although companies trading in cryptocurrency are required to disclose basic information to the B.C. Securities Commission, it’s not the commission’s job to determine where the money is invested and the quality of that investment.
Costa concludes. “At this point, all we can do is work with the information that we are given and make decisions on that basis. We will be able to explain tax and accounting rules involving cryptocurrency when they are decided by Ottawa — and that may be some time in coming.”
Fernando Costa is a partner with Manning Elliott LLP with expertise in public company assurance and reporting requirements and in providing management, accounting and tax advice for private owner-manager businesses. For more information regarding this topic, please contact us at 604-714-3600.
Manning Elliott LLP is one of the province’s largest independent regional accounting and business advisory firms with offices in downtown Vancouver (604-714-3600), Burnaby (604-421-2591), Surrey (604-538-1611), and Abbotsford (1-604-557-5750). The firm has been around for more than 60 years and employs over 200 professionals and staff.