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Crypto Taxes: CRA Wins to Audit Coinsquare Ltd Customers

On March 19, 2021 the Federal Court of Canada issued an order requiring Coinsquare Ltd. to divulge information about its customers to the Canadian Revenue Agency (CRA)

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Buy Bitcoin > Crypto Taxes > CRA Wins to Audit Coinsquare Ltd Customers

Updated: March 30, 2021

This type of reaching into the customer databases of Canadian digital asset exchanges is not unexpected, as the Internal Revenue Services (IRS) has already made similar successful requests to monitor compliance of trading and reporting of US based crypto exchanges.

The CRA had initially filed with the Federal Court in late 2020, requesting Coinsquare Ltd. to provide documents and information for each of its customers, active and inactive, registered with an address in Canada for the period from January 1, 2013 to the date of the court order, March 19, 2021. The Federal Court order affects the following categories of customers:

  • Customers with accounts that had a value of $20,000 or more on December 31st of any year from 2014 to 2020
  • Customers with cumulative deposits of $20,000 or more since the account opening; and
  • The 16,500 largest customer accounts by trading volume and by number of trades in both Canadian dollars and coins between December of 2014 and December of 2020

Crypto Taxes: Buying & holding

Buying cryptocurrency is not a taxable event

Crypto Taxes: Selling & trading

The sales of crypto must be reported to CRA

Calculation of crypto gain or loss

Proceeds minus the average adjusted cost base

Reportable gain or loss

All crypto gains and losses are reportable

Crypto record keeping for tax purposes

Keep records of your cryptocurrency transactions

Capital gain vs. Business income

Capital gains and losses vs. Business income

CRA requested this information in order to ensure customers have “complied with their duties and obiligations” for tax reporting and compliance with the Excise Tax Act and the Income Tax Act. Coinsquare customers, either alone or jointly with any other person(s) or business(es), and subject to the parameters of the court order can expect the following information to be disclosed:

  • Detailed listing of transfers identifying where the deposits came from and where the withdrawals went to
  • A detailed list of trading activity
  • Deposit addresses of Coinsquare Ltd.’s customers
  • All other information retained relating to customer transactions

On March 23, 2021, Coinsquare announced they have finalized an agreement with the CRA to provide limited client information for certain users in order to protect its client’s privacy.  

"Coinsquare and the CRA have agreed that information relating to 90-95% of our clients will not be disclosed. The affected clients include those who have had accounts valued at CAD$20,000 or more on Dec. 31 in the years 2014 through 2020 and 16,500 of the largest client accounts by trading volume during those periods. The negotiated agreement and court order legally compels us to provide the CRA with limited client information by April 6, 2021."

In the first of its kind ruling for the CRA, this is likely the first of many checks on Canadian digital asset exchanges to ensure proper crypto tax reporting and compliance.  Recently the Canadian Securities Administrators published guidance on improving the quality of disclosures provided by issuers that engage materially with crypto assets (crypto asset reporting issuers).Those who hold cryptocurrency should view this as a strong reminder of the importance of understanding your requirements and obligations when entering the world of cryptocurrency trading.

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