Canadian Lawyer

June 2022

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www.canadianlawyermag.com 27 a profit or incurred a loss, he says. Business income is fully taxable, while capital gains are only taxed at half. But a business loss is fully deductible against other income, while a capital gain is "restricted" – only 50 percent of it is deductible against other capital gains. "I suspect, without being cynical, given the nature of tax law, people will want to characterize the gain or loss to their advan- tage," says Krishna. "We like our losses to be considered business losses so that we can deduct them fully. We like our gains to be capital gains so that we pay tax only at one-half." Whether crypto is taxed as capital gains or income is "simple to state, very hard to answer," says Toronto tax lawyer David Rotfleisch. "Nothing in the Income Tax Act clarifies that issue. So you look at the case law, and judges have developed a number of tests." The foundational test examines the inten- tion of the person who executed the transac- tion producing the gain, says Krishna. Regal Heights Ltd. v. Minister of National Revenue and Irrigation Industries Ltd. v. The Minister of National Revenue, from 1960 and 1962, are the seminal cases enunciating the intention test, "which is what we use, primarily," he says. "This may sound childish," says Cloutier, "but business is busy-ness." If crypto is trans- acted in a manner that is "organized," "busi- ness-like," "structured," and takes up a lot of the taxpayer's time, it is taxable as business income, he says. The crypto-trading platform Coinsquare's 2022 tax guide lists the following as a "taxable event": selling or gifting crypto, converting crypto into cash, trading or HYPERGROWTH: NUMBER OF CRYPTOCURRENCIES WORLDWIDE exchanging crypto – including trading one type for another – and using crypto to buy goods or services. The guide said the CRA would examine several factors to determine whether the event will produce a capital gain or business income. These factors include trading volume, amount of time between trades, time spent researching markets and planning, whether crypto-trading is the taxpayer's primary source of income, whether they have outside financing, and whether they advertise or promote their trading. David Piccolo, a tax litigator and partner at TaxChambers in Toronto, says he has recently seen that Canada Revenue Agency has been beefing up its crypto-auditing capabilities. The trend, he says, originated with Coinsquare and the 2021 Federal Court ruling ordering the platform to disclose to the CRA a trove of information on its users. Coinsquare is among Canada's largest cryp- to-trading platforms. The company was required to disclose all accounts that had contained a minimum of $20,000 in value on the last day of the year, in any year from 2014 to 2020. Coinsquare also had to disclose the 16,500 largest accounts on its platform during that period. In an article on his website, Rotfleisch writes that the Coinsquare disclosures are part of a "global trend" in which crypto-ex- change platforms are being compelled to provide customer information. The Coinsquare case was preceded in 2017 by a US court order forcing the exchange Coinbase to make similar disclosures to the Internal Revenue Service. "This is simply a new form of transaction. But the principles remain exactly the same" Vern Krishna, TaxChambers LLP 2013 2017 NOV 2019 FEB 2021 4,501 6,826 9,929 10,397 506 1,335 2,817 66 OCT 2021 JAN 2022 FEB 2022 2014 Source: Statista

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