Does Canada View Bitcoin as Currency?
Published on November 22, 2013 at 18:59 GMT
My name is Matt Burgoyne and I'm an associate at Canadian legal firm McLeod Law. I'm involved with Canadian and international counsel in the developing area of virtual currency law, specifically including bitcoin currency.
Does Canada consider bitcoin to be a real sovereign "currency" or simply a commodity? This question is particularly relevant given various bitcoin related news stories that have involved Canadian companies in recent weeks.
First, as most have no doubt heard, there is at least one bitcoin ATM operating in a Vancouver coffee shop, and according to a Vancouver Sun article dated 9th November, $100,000 of Canadian currency was traded through the machine in a single week.
Bitcoiniacs, the operators of the ATM, have publicly stated that several other Canadian cities can expect to host to similar types of bitcoin ATMs in the coming months.
“The Canadian government has finally come out with some official guidance on bitcoin.”
Alix Resources Corp a Canadian mining company, also confirmed that it will be paying the accounts of at least one of its contractors, Ridge Resources Ltd, in bitcoin.
I would imagine the question of whether the Canadian government considers bitcoin to be a currency or commodity has at least touched the corporate minds of Bitcoiniacs, Alix Resources and Ridge Resources and the minds of their legal and tax advisors.
The Canadian government has finally come out with some official guidance on bitcoin.
According to a fact sheet published in early November 2013 by the Canada Revenue Agency (CRA), Canada’s equivalent to the IRS in the United States and the HMRC in the UK , bitcoin is referred to as “virtual money” and an example of “digital currency”.
However, in the same paper the CRA distinguished bitcoin from “traditional currency” and so we can infer that at least one branch of the Canadian government does not view bitcoin as currency in the traditional sense but instead views it as a barter good and should be taxed as such.
In a piece entitled Working Paper 2013-38 - Some Economics of Private Digital Currency published in mid-November, which does not appear to be targeted at a general audience, given the reference to numerous complex math derivative-type equations which don’t even relate to bitcoin, the Bank of Canada proclaimed that bitcoin is a “fully convertible, pure digital currency [that] is explicitly designed to compete with state currencies”.
I would disagree with the latter statement that bitcoin is designed to compete with state currencies; while bitcoin is disruptive, I would not categorize it as deliberately competitive.
Rather, I see statements such as these to be further evidence that certain governments view bitcoin as a form of barter good as opposed to legitimate form of currency.
Is this a good thing? In my view it may not demonstrate to the world that Canada is being as progressive towards bitcoin as some other countries have been.
In the writer’s respectful opinion, the Canadian publications referenced above unfortunately do not give Canadian companies, or the general public for that matter, any guidance on Canada’s position on bitcoin, legal or otherwise (except for the friendly reminder from the CRA that our bitcoins will be taxed).
It would be beneficial for Canadian businesses and the general public to get some kind of readable, clear and ‘user friendly’ direction from the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), Canada’s bitcoin ‘police force’ as to their official position on bitcoin.
I assume that FINTRAC is monitoring the situation surrounding bitcoin closely and the lack, as of the date of this publication, of the production of a broad based public statement could mean two things:
(1) that FINTRAC is “taking in” all of the recent developments in bitcoin and are thoughtfully considering both the good and the bad; and
(2) that FINTAC will ultimately come out with a reasoned, well thought out approach (similar to the position Germany has taken, for example) rather than a issue a 'knee jerk' response. Time will only tell.
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