CRA’s Initial Cryptocurrency/Bitcoin Audits Are Likely First Of Many
The Canada Revenue Agency (the “CRA”) appears to be targeting users of bitcoin and other cryptocurrencies for audit, according to a Forbes online article (the “Article”). Moreover, the CRA is sending a questionnaire (the “Questionnaire”) along with audits, requiring taxpayers to describe their bitcoin-related activities.
As the Article points out, the scrutiny comes with little surprise. Jared Adams, the CRA Project Oversight Director, tweeted a would-be harbinger earlier this year. In response to a bitcoin-related company tweet explaining how to purchase bitcoin without the use of a bank account, Jared posted one “washingmachine.gif” to strongly insinuate attempted money-laundering.
South of the border, the Internal Revenue Service (the “IRS”) targeted bitcoin users in the past. A federal Judge in San Francisco ruled that Coinbase, a popular cryptocurrency marketplace, must supply the IRS with information identifying users who had more that US$20,000 in annual transactions on its platform between 2013 and 2015. While the IRS initially requested nine data points, including “complete profiles, know-your-customer due diligence, documents regarding third-party access, transaction logs, records of payments processed, correspondence between Coinbase and Coinbase users, account or invoice statements and records of payments”, the decision narrowed the scope of the documents the IRS can request to taxpayer ID number, name, date of birth, address, transaction logs and account statements, deeming the rest “not necessary”.
Back in Canada, It is unclear how the CRA selected the referenced group for audit. We were unable to find Federal Court documents compelling a Canadian cryptocurrency marketplace, like the recently defunct Quadriga CX, to provide user data to the CRA under Section 289(3) of the Excise Tax Act and Section 231.2 of the Income Tax Act. We found no evidence that a cryptocurrency marketplace—whose value-add proposition is privacy—has provided the CRA with user information. That said, it is conceivable such a marketplace shared user information without resisting a CRA request.