Bitcoin investment and Canadian tax

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Each year I help over 500 clients file their Canadian and US tax returns as well as plan for both their Canadian and US investment accounts. I also regularly help new US clients plan for their move to Canada.

Feel free to reach out via email at phil@philhogan.com or by phone or text here 250-661-9417.




Question

I’m not sure this is the right place to post this, but I can’t seem to find a good answer anywhere. I was lucky enough to buy bitcoin at very low levels in 2013 (my brother is a tech at google) and I’ve held a significant amount of my coins.

I’m not very optimistic of the prices beyond these levels and want to convert most of my coins to Canadian dollars. I would also be willing to convert to US dollars if that makes more sense for tax purposes.

My gain on the sale will be high 6 figures and I’m worried about doing something that will result in a lot of tax.

Are there any strategies for reducing the amount of tax I’ll need to pay on this?

Do I need to pay US tax on this because I original purchased the bitcoins from a US exchange? I currently hold them in a secure hardware wallet at my house.

Any help would be very much appreciated.

Sami

Answer

Hi Sami

Congrats on the successful investment. I see that bitcoin broke new highs today.

If you are a current Canadian resident and not a Citizen or green card holder of the US you’ll likely not be taxed on any of your bitcoin gain in the US.

If you haven’t already sold your bitcoin you may have some options. If you’ve already sold the coin you’ll be taxable in 2017 on the entire amount.

If you have any current capital losses that have yet to be used we may want to realize some of the coin gain against this previous loss. Also if you have any inherent capital losses in your other portfolios (or perhaps other coins) we could realize some of these losses.

Depending on your income, and whether you’re actually willing to hold any of the coins we may be able to spread the gain over a number of years to help reduce the overall amount of taxes owed.

Please give me a call and we can discuss your options.

Cheers

Phil

***please note that the text below was transcribed from a voice chat. For more clarification on the information below please contact me at phil@hutcheson.ca***

This is an excerpt from a recent Bitcoin and crypto currency conversation that may be helpful to the group:

Of course if you’ve been following the news on crypto currencies and Bitcoin, Ethereum, all the ICOs that are becoming public recently, you’ll notice that Bitcoin and other crypto currencies have risen quite a bit in value over the last couple of months. Bitcoin’s trading at mething like $5600-$5700 USD, Ethereum’s trading anywhere between $300 and $330 USD. why is this important from a tax perspective? Well, many people who had purchased Bitcoin or Ethereum or really any other crypto currencies in the past especially if they purchased within the last couple or a few years ago, would be sitting on me very significant approved capital gains on these crypto currencies.

let’s use a good example. Tax payer #1 and we’re just assuming this is a Canadian individual – tax payer #1, purchased $10,000 of Bitcoin in 2013, now that Bitcoins are worth, let’s say these numbers will be wrong, but just for the sake of the illustration, that’s now worth $100,000. this individual has a $90,000 capital gain – accrued capital gain, unrealized capital gain, that if they were to sell their Bitcoin and these numbers could be much higher for anybody that purchased a Bitcoin at a much lower levels, they’ll have a $90,000 unrealized capital gain. Now, if this individual does not convert their Bitcoin to USD or to really any other crypto currency then they would have realized the capital gain and they shouldn’t be taxed on the capital gain. And this there is importance in planning for this.

We have one client with over $500,000 capital gain in his Bitcoin and we have to be careful not to realize this capital gain in 1 year because the tax on that and if we just use – assuming that we treat that as a capital gain and not a business account – you’re probably looking at 25% on the $500,000 capital gain. for anybody who is in this situation, it’s very important that first you recognise that if you haven’t converted the Bitcoin you probably don’t have a taxable sale. But if you’re converting Bitcoin to USD or even from Bitcoin to another crypto currency, you’ll likely have a disposition and you have to pay tax on that capital gain. if you’re in this situation, please give me a call 250-3812400 or email me at Phil@hutchen.ca, and we can talk about how we might be able to plan for your crypto currency or Bitcoin gain.

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