Two US states have issued new advisories and warnings on bitcoin, while Canada’s tax authority has outlined its position on revenue from the cryptocurrency.
The Nevada Department of Business and Industry, Financial Institutions Division, has issued consumer and investor guidance on digital currencies. Maryland’s Department of Labour, Licensing and Regulation issued a warning on the risks associated with digital currencies, while Canada’s tax authority issued more guidance on bitcoin activities and transactions.
Of the three, the Canadian guidance is the most likely to have a direct and immediate effect on some members of the bitcoin community. The Canada Revenue Agency (CRA) published a new document outlining its position on digital currencies and responding to questions raised back in March.
Canada taxman to evaluate on case-by-case basis
CRA’s document 2014-0525191E5 is dated 28th March, but it appears to have been made public just recently. The document points out the difference between personal and business activities, citing previous precedents ruled on by the Supreme Court of Canada.
In essence, it means Canada will view the matter subjectively, on a case by case basis. When authorities deem the activities were undertaken for profit, the taxpayer’s income will be taxed with reference to the taxpayer’s inventory at the end of the year. The value of inventory will be based on fair market value, although alternative methods could be applicable in some situations.
Eventual losses through theft or embezzlement will be deductible if they are caused by inherent risks rather than negligence.
Barter transactions are allowed, but the CRA states that the value of goods or services obtained by bartering digital currencies must be included into the taxpayer’s income, provided they are business related. Gifts will not be subject to income tax, but this does not apply to voluntary payments from an employer, reports Canadian tax litigation.
Bitcoin too risky for Las Vegas
Nevada’s guidance is more or less in line with what we have seen from various national regulators over the past six months.
The Nevada Financial Institutions Division points out that bitcoin, litecoin and other cryptocurrencies are not legal tender and they are not backed by any central bank or governmental authority. All consumers are urged to consider a range of risks associated with digital currencies, including volatility, risk of theft, lack of consumer protection, potential tax implications or the use of digital currencies for illicit activities.
Nevada is calling on consumers to do their homework:
“Consumers considering the use of virtual currencies should research any company offering services related to virtual currencies. This includes exchanges, platforms, administrators, sellers, or ATMs.”
There is nothing earth shattering in Nevada’s guidance, as we have already seen plenty of similar warnings and the vast majority of crypto users are already familiar with the risks.
Maryland echoes Nevada guidance
The Maryland Office of the Commissioner of Financial Regulation has issued a similarly worded warning. Like their counterparts in Nevada, Maryland regulators are urging regulators to do their ‘homework’ and be aware of the risks associated with digital currencies, including volatility, theft, criminal activities and so on.
The advisory points out:
“State and federal regulators are evaluating and developing approaches to regulating virtual currencies and companies that deal in virtual currencies. Any company that offers to exchange, administer, or maintain virtual currencies may be subject to state regulation and licensing, as well as federal regulation. CURRENTLY, MARYLAND DOES NOT REGULATE VIRTUAL CURRENCIES.”
Furthermore, the regulator points out services that engage in converting, buying, selling or transmitting digital currencies must be registered as a money services business (MSB).
Need help with your ‘homework’?
Although regulation is still very controversial in the bitcoin community, these latest notices shouldn’t be.
State regulators are taking a neutral approach and their principal goal appears to be education – hence all the homework references. Consumers are encouraged to familiarise themselves with digital currencies and regulations that may apply to their investments.
The notices include several resources that could be beneficial to novice investors as well as seasoned bitcoiners. These include lists of securities regulators and relevant regulatory notices.
For example, FinCEN can be used to ascertain whether or not a bitcoin operator has an MSB license. It also lists of out-of-state licensed money transmitters whose licenses have expired.
Since neither state currently regulates digital currencies, the regulators have to rely on the existing (and somewhat inadequate) framework. However, they can attempt to educate the public and help consumers make an informed choice.
Regulation image via Shutterstock