According to Revenu Québec, Quebecers declared nearly $300 million in profits from cryptocurrencies in 2021. However, these figures represent only part of the reality, as supporters of these investments are divided on the tax issue.
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“So there are a lot of people who have made big profits [près de 300 M$ en gains], which doesn’t really surprise me,” says Marc-Antoine Laurin, tax specialist at accountancy firm Raymond Chabot Grant Thornton. Keep in mind that the top virtual currency, Bitcoin, is up nearly 50% in Canadian dollars in 2021.
“It changed lives,” says Mr. Laurin. He says some of his clients made millions of dollars in profits this year.
Conversely, last year’s slump hurt many investors.
“I’ve seen big losses, people who had invested everything in Luna [une crypto qui s’est désintégrée] or in FTX [une plateforme d’échange devenue insolvable]», says Mr. Laurin.
Beginning with the 2020 tax year, Revenu Québec is requiring taxpayers to clearly state on their tax returns whether they have booked any capital gains using cryptocurrencies.
Therefore, the government agency can now provide data on this. However, the obligation to declare remains unknown to the general public. To change that, Revenu Québec has been investing just over $100,000 a year in advertising campaigns since 2020.
Everything is taxable
Tax authorities do not consider cryptocurrencies as currencies but as financial assets. Because of this, in their eyes, any “profitable” transaction made through cryptos is taxable. Be it a sale of cryptos, a purchase made with cryptos, or even converting a crypto asset into another cryptocurrency.
Roberto Montesi, CEO of Vezgo
“People don’t understand why they need to calculate their capital gains when exchanging bitcoin for ether when they normally don’t when exchanging Canadian dollars for US dollars,” says Roberto Montesi, CEO of Vezgo.
Not all cryptocurrency investors are inclined to report their transactions to the tax authorities. In a message posted to a crypto group on Facebook this week, one user wrote “You don’t understand crypto” in response to another who claimed to want to comply with government regulations.
In an exchange with Le Journal, an investor who requested anonymity clarified that he declared the crypto profits he made on centralized platforms (CEX), but did not yet know if he would do so for his profits recorded on decentralized Platforms (DEX) deemed less accessible to tax investigators.
- Listen to Richard Martineau’s economics column with Yves Daoust, director of money at the Journal de Montréal and the Journal de Québec QUB radio :
Traceable Transactions
However, Seb Audet, CEO of the Zapper platform, points out that even with decentralized platforms it is possible to trace the transactions carried out thanks to blockchains.
“It’s hard to hide something in a universal database that anyone can see,” he says.
“If they don’t report today, they’ll just be caught up in a few years’ time when the tax authorities will be better equipped to analyze this type of activity,” he adds.
Mr. Montesi believes that as in other sectors of society, “there will always be 20% of people who want to cheat”.
“Someone who wants to hide out in the real world can do so at an offshore bank or work under the desk,” he notes. But for crypto to take it to the next level, I think there needs to be more regulation.”
– With Pascal Dugas Bourdon, Bureau of Investigation
Quebec Crypto Gains and Losses Explained
2021
capital gain
- Individuals: $234.1 million
- Companies: $57.2M
- In total: $291.3M
capital losses
- Individuals: $14.6M
- Companies: $2.5 million
- In total: $17.1M
2020
capital gain
- Individuals: $24.7M
- Companies: $4.1M
- In total: $28.8M
capital losses
- Individuals: $4.6M
- Companies: $0.5M
- In total: $5.1M
♦ Persons who qualify as active investors can be included in companies. Data does not include cryptocurrency gains reported as business income.
Source: Quebec Revenue
Not so easy to comply with
Virtual currencies are making a great start to the new year in the markets, which is causing more and more Quebecers to take an interest in them. But even with a lot of will, it is not easy to respect government rules in this area.
Complicated
The main difficulty arises from the fact that cryptocurrency platforms, unlike banks and securities brokers, are not required to report transactions performed on their clients’ accounts to the tax authorities.
In addition, not all platforms allow easy determination of the buying and selling prices of crypto assets, which are essential for calculating the capital gains and losses realized during the year.
“There is software that helps track crypto, but none has been approved by the tax authorities yet. You still need to deal with an expert when you have a lot of transactions because there are loopholes in this software. It’s complicated,” says Marc-Antoine Laurin of Raymond Chabot Grant Thornton.
“I don’t know what percentage of people do or don’t report their income to the tax authorities, but there are a lot of people who come to us who find out that they have to report and want to comply,” he continues. . .
indiscreet questions
Those who do not declare their income expose themselves to tax audits.
“I’ve had some audits by the tax authorities related to cryptocurrencies,” says Mr. Laurin. You have asked me many questions. What investigators look at is the frequency of transactions, how long the crypto is kept, the time you devote to it, your knowledge of the environment…”
“Revenu Québec can request [aux plateformes de cryptomonnaies] Information about the transactions carried out by its customers,” the agency confirms to the Journal.
“Shakepay is committed to making it easier for its users to declare their cryptocurrency earnings during tax season,” asserted Jean Amiouny, CEO of the Quebec platform.
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