[author: Christopher Payne]
As expected, the U.S. Internal Revenue Service has provided some guidance on the U.S. tax treatment of Bitcoin.
In Notice 2014-21 (March 25, 2014), the IRS stated that Bitcoin is property and not currency for tax purposes. According to the Notice, “general tax principles applicable to property transactions apply to transactions using virtual currency.” Some of the U.S. tax implications of Bitcoin include the following: (1) taxpayers receiving Bitcoins as payment for goods or services must include in their gross income the fair market value of the Bitcoins; (2) taxpayers will have a gain or loss upon the exchange of Bitcoins for other property; and (3) taxpayers who “mine” Bitcoins must include the fair market value of the Bitcoins in their gross incomes. The IRS also confirmed in its statement that employment wages paid in Bitcoins are taxable.
This guidance from the IRS accords with the positions taken by tax authorities in other jurisdictions.
Commentators have considered the tax implications of Bitcoin in Canada both before and after the CRA released its most recent guidance in CRA Document No. 2013-0514701I7 “Bitcoins” (December 23, 2013).
The Canadian government has taken the position that Bitcoin is not legal tender. The Canada Revenue Agency has stated that, when addressing the Canadian tax treatment of Bitcoin, taxpayers must look to the rules surrounding barter transactions and must consider whether income or capital treatment arises on Bitcoin trading (i.e., speculating on the changes in the value of Bitcoins).
While Bitcoin currency exchanges encounter uncertainty (or fail entirely), and Bitcoin prices continue to fluctuate, the global tax implications of Bitcoin are becoming clearer.