/Canada Schemes to Launch Audits Against Bitcoin Tax Evaders

Canada Schemes to Launch Audits Against Bitcoin Tax Evaders

The Canada Revenue Agency (CRA) is reportedly targeting Bitcoin investors as well as other cryptocurrency users with federal tax audits.

The CRA has also sent questionnaires to determine the previous trading and investing activity. Taxation of cryptocurrency has been a gray area for years,  with tax attorneys and even regulators unsure of how to proceed.

With many investors using KYC-enabled exchanges which store ID and trading history, it’s likely that the audits will uncover all past trading activity in some cases.

CRA Lays Down The Law

CRA Project Oversight Director Jared Adams took to Twitter to comment on the use case of Bitcoin as a vehicle money laundering vehicle.

To his 300-odd followers, the CRA director retweeted a post made by Francis Pouliot, the CEO of Canadian crypto firm Bull Bitcoin. Pouliot’s post, which was tweeted to tens of thousands of supporters, described the process of cashing bitcoins into Canadian dollars “without using a bank account, P2P platform, or Bitcoin ATM”.

CRA director Adams stated that he was taking note of the comment, and added another tweet saying “washingmachine.gif.” The director seemed to be attempting to draw on internet humor to sarcastically make a reference to money laundering, although shirked away from debating the prominent CEO when called out on it.

Source: Twitter

Pouliot stood his ground and challenged the CRA directors efforts at accusing him of money laundering through a meme, stating the fact that hundreds of Canadians have been denied basic banking services simply for legally using Bitcoin. He asserted that his tweet was aimed as advice for such people.

Like hundreds (known cases) of Canadians citizens and companies, I have had essential financial services like banking, payments and credit cards restricted and accounts closed because of my usage of Bitcoin.

Pouliot pointed out that the Canadian Senate had been notified of the problem, something which Adams refused to discuss. He also refused to clarify his comments regarding money laundering or engage the Bitcoin CEO in an actual conversation regarding regulation or the issue of Canadians being forced to choose between cryptocurrency and basic banking services.

The situation is reminiscent of that in India where banks are forcing users to promise not to use crypto or lose their account.

CRA Statement

The CRA commented on its latest initiative.

The Canada Revenue Agency (CRA) understands that a vast majority of middle-class Canadians pay their fair share, but it remains committed to ensuring that without exception, every taxpayer abides by the same tax laws.

As a world-class tax administration, the CRA is also committed to adapting its administration to keep pace with evolving global services and products, and making key investments to effectively address the new ways of doing business in the global economy.

The organization stated that it now has a crypto-intel unit dedicated to collecting intelligence and conducting audits on risks related to crypto. In its statement, the agency provided information regarding taxation of cryptocurrency.

This unit has enhanced the CRA’s ability to monitor and enforce compliance in areas of emerging risk, including the cryptocurrency space. There are currently over 60 active audits related to cryptocurrency.

The CRA is also committed to helping taxpayers understand their tax obligations when using digital currencies, and to remind them that using digital currency does not exempt consumers from their tax obligations. The CRA has published educational material on its website regarding the tax treatment of dealing in Digital Currency.

AML Questionnaire

Source: Scribd/Kyle Torpey

Audit recipients have to fill out a questionnaire with 54 questions plus sub-questions regarding cryptocurrency. The questionnaire asks about investments, mining history, assets, wallets, ICOs, and other related subjects.

The third question asks about mixing services which exist to add anonymity to pseudonymous cryptocurrencies like bitcoin by switching funds among users to confound anyone attempting to track transaction history.

Question four specifically refers to ShapeShift and Changelly, exchanges popularized partly due to the lack of KYC (Know Your Customer) regulations allowing for anonymous sign-up. ShapeShift recently implemented KYC due to regulatory pressure, and the questionnaire asks about private or in-person purchases of crypto as well.

The questionnaire also asks if the person in question has purchased crypto assets from private individuals:

Did you purchase bitcoin or crypto currencies privately from individuals? If so, how did you become aware that these individuals were willing to buy or sell crypto currencies? How were these transactions facilitated — location, procedure followed, etc?

Users are even asked to list all crypto asset addresses not associated with custodial exchange accounts. The CRA did not go so far as to ask for private keys.

The questionnaire ends with a disclaimer that more questions may be asked of audit recipients.

The questions are not exhaustive and we may require additional information during the audit.

Regulators Are Losing Power, And It Shows

The passive aggressive and rather childish comments made by the CRA director, as well as his unwillingness or inability to discuss the issues with a cryptocurrency professional are unfortunately indicative of the hostile and ill-informed attitude displayed by many regulatory authorities worldwide.

While crypto is clearly “the problem”, there is no sign of regulators meeting cryptocurrency users halfway.

This attitude is a relic of the past when such agencies as the CRA had a far greater degree of control over the personal finances of Canadian citizens.

The unfortunate reality is that if the CRA and Canadian banks continue to push Canadians into a corner and force them out of banking services, they can and will use cryptocurrency without government oversight. The use of services like Local Bitcoins, anonymous VPNs, and decentralized exchanges make it all too easy to transact anonymously.

The irony is that in falsely accusing people of money laundering and persecuting their investment decisions, the CRA is likely to trigger a wave of money laundering or tax evasion that they will be utterly powerless to stop.