I have helped hundreds of people successfully navigate from the US to Canada. If you're thinking of moving or retiring to Canada contact me today to chat about your plans.
I can be reached via email at phil@philhogan.com, by phone at 250-661-9417 or through my contact page here.
I look forward to speaking to you soon.
Phil Hogan, CPA, CA, CPA (CO)
Cross-Border Tax and Investment Specialist
Question
Hi
I’m an American living in Canada and I see that you help people with Canadian and cross border tax and investment issues. I need some help in this area.
Early on in the evolution of Bitcoin and other cryptocurrencies I started to invest in coins such as Bitcoin, Lite Coin and more recently Ethereum Coins. I’ve been fortunate enough to have increased my original investment significantly over the last few years.
Most notably, my current Bitcoin position capital gain is closed to $500,000. I know I’ll need to pay some level of tax, but not sure how I’m supposed to do plan for this
My situation is further complicated by the fact that I’ve traded in and out of cryptco trading positions over the last few years and have not reported those transactions on my tax returns.
Any help would be appreciated.
Sincerely
XXXXXX
Answer
Hi XXXXXX
For of all, congratulations on the great Bitcoin trade/investments. Many of us wish we could have caught that trade early on.
Your situation may be a little more complicated than you anticipated. First, I’m assuming that you file both Canadian and US tax returns on a current basis based on your US citizenship. As a resident of Canada (assuming you’ve been a resident of Canada since you started investing in Bitcoin) you’ll likely only be taxable on the bitcoin gain in Canada.
I’m also assuming that you are filing FBAR forms (form 114 foreign financial reporting forms) to report your non-US investment and bank accounts. If you’re holding your cryptco coins in a PC wallet these amounts are likely to be reported on form 114.
As you mentioned above, the tracking of transactions may be challenging considering the amount of trading done in previous years. We can discuss some strategies on amending the prior year transactions when we speak. Considering you have failed to report prior year capital gains transactions I would suggest we explore the options of filing late tax returns under the Canadian voluntary disclosure program. Reviewing possible US tax amendments will also be necessary. Going forward we’ll need to properly track your the ongoing cost of your cryptco assets to ensure proper gain gain/loss reporting is happening on a current basis each year.
As for the gain that has not yet been realized there may be some options that will help reduce the ultimate tax that will be paid on the transaction. Perhaps liquidating some of the open position over the next few years will lessen the tax impact. Let’s chat more about your options over the phone. Please give me a call at 250-381-2400 and we can chat further.
I look forward to our conversation.
Regards
Phil
Hi
I invested in an ICO last year that has increased over 10 times since then. I bought around $1,500 that is know worth $15,000.
I recently converted the ICO coins into Bitcoin and Ethereum.
Do I need to pay tax on the appreciation? Or just half?
do I need to report my ICO and other cryptos on my FBAR forms?
That’s a good question. And we’re starting to see that more often now. I would say you’re going to run into situation into specific circumstances.
First, where you’ll hold Bitcoin on an actual exchange, which is likely going to be or now likely to be outside of the US. And another situation where you’re holding Bitcoins on a personal wallet, whether it’s a paper wallet, whether it’s a hardware wallet that’s attached to your phone, a hardware wallet that’s attached to your computer or on a USB keycard wallet. And I would say, I would not make the argument that the pin-point should not be included on the FBAR because the risk of not including them is so significant that I would go ahead and do the conversion to USD and I would record on the FBAR. That’s the most conservative approach. There’s no point in excluding them to exclude them. The penalty for excluding them if the IRS disagrees is significant. So I would say when in doubt, include your crypto-currencies or Bitcoins on your FBARs.