Cryptocurrency Tax: OECD’s 2021 Cryptocurrency Reporting Framework

Cryptocurrency Tax: OECD's 2021 Cryptocurrency Reporting Framework

Cryptocurrency Tax: OECD’s 2021 Cryptocurrency Reporting Framework

Cryptocurrency Reporting Requirements: OECD to Release Cryptocurrency Reporting Framework in 2021

The Organisation for Economic Co-operation and Development (“OECD”) is due to release a recommended policy framework for cryptocurrency reporting standards in the upcoming months. Currently, there is little cohesion or transparency among the treatment of cryptocurrencies across countries. Reporting requirements and tax treatment of cryptocurrencies vary significantly across jurisdictions. In Canada cryptocurrencies are typically treated as commodities for tax purposes. This means that income from cryptocurrency transactions in Canada may be classified as business income or capital gains depending on the level of activity with the cryptocurrency. In other jurisdictions, cryptocurrencies are treated as securities or intangible assets. Furthermore, in other jurisdictions such as Denmark, Italy, and Costa Rica tax authorities have not remitted any guidance on the classification of crypto-assets for tax purposes.

The new OECD framework would suggest policies to create greater cohesion amongst the tax treatment of cryptocurrency globally. In addition, it would provide policies for the reporting and remitting of information on taxpayers’ cryptocurrency activity between governments. The framework will likely include guidelines on how tax authorities should optimally treat cryptocurrencies for taxation purposes, how to create clarity for taxpayers on the tax treatment of cryptocurrency holdings, and how to account for international cryptocurrency exchange platforms.

The framework will build upon the current Common Reporting Standards (“CRS”) of the OECD. The current CRS calls on jurisdictions to obtain information from their financial institutions and automatically exchange that information with other jurisdictions on an annual basis. More than 100 jurisdictions are currently committed to the CRS and this will likely be extended to include cryptocurrency and cryptocurrency exchanges.

Many jurisdictions have implemented virtual currency reporting requirements on institutions and businesses to prevent money laundering and other crime related financial activity. Canada has recently updated reporting requirement regulations under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, S.C. 2000, c.17 to specifically include the reporting of large virtual currency transactions. Beginning June 1st 2021, reporting entities will have to submit a Large Virtual Currency Transaction Report when they receive an amount greater than $10,000CAD in a single transaction or multiple transactions within 24 hours. Despite most jurisdictions having reporting policies for anti-money laundering, it is not clear if any of this information is shared with tax authorities of the same jurisdiction or other jurisdictions.

Canada and the United States are two countries which have recently implemented virtual currency information requirements on cryptocurrency exchanges by court application. Tax authorities in Canada obtained court orders requiring cryptocurrency exchanges to report identities of individuals who conduct cryptocurrency transactions greater than $20,000. These court orders are recent however, and there is little information on if and how this information will be shared with other jurisdictions. Regardless, an exchange of crypto-to-crypto transaction that results in a gain or income will generate a taxable event. Therefore, Canadian taxpayers are obligated to declare this amount to the CRA. In addition, Canadians have to report foreign assets greater than $100,000CAD on a T1135 with their income tax return. If Canadian residents hold cryptocurrency worth more than $100,000CAD on foreign exchanges then they must report this amount to the CRA.

In the United States, similar court orders have recently been obtained requiring cryptocurrency exchanges to provide the Internal Revenue Service (“IRS”) details about users involved in transactions over $20,000USD. In addition, the Biden Administration has released a report proposing policies for reporting requirements for cryptocurrency transactions in order to improve taxpayer compliance. The policies include requiring financial institutions and cryptocurrency exchanges to report all transactions and taxpayer information on amounts that exceed a given threshold. They will also require businesses that receive payments in cryptocurrency worth over $10,000USD to file a report with the IRS. The policies are not expected to take effect until the 2023 taxation year. The OECD’s report will likely follow similar policy recommendations as well as guidance on how this information should be shared between jurisdictions.

OECD’s Reporting Framework for Virtual Currencies: How will the new framework affect Canadian Taxpayers?

The OECD’s framework for cryptocurrency reporting standards will provide recommendations for policies and agreements between nations. These recommendations may be adopted by Canada fully, partially, or not at all. They must be adopted before they take effect. However, as mentioned above, Canadian taxpayers already have an obligation to report taxable exchanges of cryptocurrency that are taking place.

While the details of the framework are yet to be released, the OECD cryptocurrency reporting requirements will build upon the existing common reporting standards (“CRS”) and automatic exchange of information (“AEOI”) between jurisdictions. The OECD’s work on developing the reporting framework was announced last October when the OECD released a report on taxing virtual currencies. The report surveyed the current tax treatment of cryptocurrency around the world and discussed emerging policy issues. The upcoming framework is set to also address other taxation issues relating to cryptocurrency and discussed in the recent report such as income from mining or other income not derived from sales. The framework is supposed to be available for world leaders to review for the upcoming G20 2021 Rome Summit in late October this year.

Cryptocurrency Reporting Pro Tax Tips – Canadian Tax Lawyer Advice

In Canada, any exchange of cryptocurrency either for fiat currency or other virtual coins resulting in a gain or income will generate a taxable event. The trading of cryptocurrency has largely been unregulated. This resulted in it being difficult for tax authorities and sometimes even the coin holders themselves to obtain receipts of crypto-to-crypto transactions. However, with increasing regulations taxpayers holding and trading cryptocurrencies should ensure that their previous and future tax returns are properly reporting their activity. If you have questions about reporting cryptocurrency income contact one of our expert Toronto tax lawyers today.

FAQ

Do Cryptocurrency Exchanges Have to Report Transactions to the CRA?

In March 2021, the CRA obtained a court order to require the Coinsquare exchange cryptocurrency transactions to be reported. Canadian cryptocurrency exchanges have to report transactions over $20,000.

Do I have to report Cryptocurrency Amounts Held to the CRA?

Canadians have to report foreign assets greater than $100,000CAD on a T1135 with their income tax return. If Canadian residents hold cryptocurrency worth more than $100,000CAD on foreign exchanges then they must report this amount to the CRA.

Do Cryptocurrency transactions have to be reported in Canada?

Canada has recently updated reporting requirement regulations under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, S.C. 2000, c.17 to specifically include the reporting of large virtual currency transactions.  Beginning June 1st 2021, reporting entities will have to submit a Large Virtual Currency Transaction Report when they receive an amount greater than $10,000CAD in a single transaction or multiple transactions within 24 hours.

Do the OECD’s common reporting standards (CRS) include cryptocurrency?

The OECD is putting together a framework for cryptocurrency reporting requirements for countries to require the reporting of information about cryptocurrency holdings and transactions and share them with other jurisdictions for taxation purposes. This framework will build off of the existing Common Reporting Standards (“CRS”). Countries have to implement these recommended policies before they take effect. Currently, more than 100 tax jurisdictions have implemented CRS policies.

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