Bitcoin Investors Targeted by Canadian Federal Tax Agency Audits



SimonP on English Wikipedia

Several sources have confirmed to me that users of bitcoin and other crypto assets in Canada have been targeted by the Canada Revenue Agency (CRA) with audits. Those who have been targeted by the CRA have also received comprehensive questionnaires to complete regarding their bitcoin-related activities in recent years.

Earlier this year, CRA Director of Project Oversight Jared Adams tweeted on the possible use of bitcoin in money laundering in response to A recommendation made by a bitcoin-related company to their users.

In the past, the CRA has dealt with crooks who calling unsuspecting Canadians up to demanding questionable tax payments in bitcoin.

The Internal Revenue Service (IRS) in the United States has also targeted bitcoin users in the past, Coinbase’s demanding turnover large amounts of data about its users. Coinbase ultimately fought the demand for user data in court and was able limit the scope IRS data collection.

CRA statement

When asked to comment on targeting cryptocurrency users, a media contact at the CRA shared the following statement:

“The Canada Revenue Agency (CRA) understands that the vast majority of middle-class Canadians pay their fair share, but it remains committed to ensuring that, without exception, all taxpayers follow the same tax laws. As a world-class tax administration, the CRA is also committed to adapting its administration to keep pace with the evolution of global services and products, and to make key investments to effectively address new ways of doing business. of business in the global economy.

“In order to meet these commitments, the ARC created a dedicated cryptocurrency unit in 2017 to develop intelligence and conduct audits focused on cryptocurrency risks. This unit enhanced the CRA’s ability to monitor and enforce compliance in emerging risk areas, including the cryptocurrency space. There are currently over 60 active cryptocurrency-related audits.

“The CRA’s increased efforts in this area are a direct result of its Underground economy strategy, which includes a commitment to monitor emerging platforms and new business models, with a particular focus on the sharing economy and digital currencies.

“In order to protect the integrity of our risk assessment systems, we cannot comment on the specific information or criteria we use to select which files to audit. However, we use a combination of advanced analysis and business intelligence activities to ensure that we choose the riskiest files to audit while promoting a fair tax system for all Canadians.

“The CRA is also committed to helping taxpayers understand their tax obligations when using digital currencies and reminding them that using digital currency does not exempt consumers from their tax obligations. The CRA has posted educational material on its website regarding the tax treatment of transactions Digital currency. “

The question sheet

As part of the audit process, those who were targeted by the ARC received questionnaires in which they are asked to describe in detail their involvement in the cryptocurrency space. The cryptocurrency portion of the quiz is 13 pages long and has 54 questions, many of which include sub-questions.

Notably, one of the questions concerns the use of mixing and tumbler services, which are used to hide the origins of cryptocurrency funds and improve user privacy.

“Do you use cryptocurrency and goblet mixing services? If so, what services do you use? Can you please provide us with the trace history, as well as any cryptocurrency addresses that you have “mixed”? Why do you use these services? Asks the questionnaire.

The next question also asks if the person of interest uses Metamorphose Where Changelly, both of which allowed users to trade crypto assets without tying their transactions to a real-world identity. ShapeShift has recently changed to a model that requires users to create accounts and share personal information. Changelly still only requires an email address during the registration process.

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

“Have you bought bitcoin or cryptocurrency privately from individuals? If so, how did you find out that these people were willing to buy or sell cryptocurrency? How were these transactions facilitated – location, procedure followed, etc. Asks the questionnaire.

In the past, law enforcement agencies in various jurisdictions have carried out undercover operations on people who buy and sell bitcoin on classifieds trading platforms such as LocalBitcoins. Just like ShapeShift, LocalBitcoins plans increase the amount of information it collects from its users.

The CRA questionnaire goes so far as to ask the person of interest to list all the addresses of personal crypto assets that are not associated with their custodial wallet accounts. This question adds a disclaimer to remind individuals not to include their private keys in their response.

Another question asks if the individual has ever been the victim of cryptocurrency theft. Notably, there is a common joke in the crypto asset community that large holders will just say they or they lost their private keys in a boat accident as a way to hide their wealth.

The questionnaire also asks about participation in Initial Coin Offerings (ICOs), participation in cryptocurrency mining, and passive income generated from node-related operations on various crypto asset networks.

“The questions are not exhaustive and we may need additional information during the audit”, can be read at the end of the list of questions.

The entire cryptocurrency portion of the quiz can be viewed on Scribd.



Esther L. Steinbach

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