Coinsquare compelled to divulge cryptocurrency user information by CRA, for accounts over $20,000 dating back to 2013

Introduction: The Court Order Against Coinsquare from the CRA

On September 18, 2020, the CRA filed a Federal Court suit against Coinsquare in an attempt to force the Toronto-based cryptocurrency platform to divulge tax information about its users.

Following a Federal Court judgment on March 19, 2021, the Canadian tax litigation lawyers for the CRA and Coinsquare have reached an agreement on the extent of the disclosure. Coinsquare is a cryptocurrency trading platform located in Canada that was established in 2014. It allows its customers to trade cryptocurrencies with both digital assets and fiat cash. The following article will first explain the judgment and then assess its implications for Canadian taxpayers who own cryptocurrencies.

AMENDED DISCLOSURE REQUEST FROM THE CRA

Given that it had a more limited scope than what was previously stated, the disclosure request included in the court order dated March 19, 2021, was probably the outcome of negotiations between Canadian tax litigation lawyers for the CRA and Coinsquare. A disclosure request from the CRA for all information on Coinsquare's cryptocurrency clients going back to 2013 was the first thing the CRA issued to Coinsquare.

The CRA asked Coinsquare to reveal information about the following clients in the present request, which was granted by the Federal Court. The CRA first asked for information on clients with Coinsquare accounts worth at least $20,000 Canadian on the following eight dates:

1. December 31, 2014,
2. December 31, 2015,
3. December 31, 2016,
4. December 31, 2017,
5. December 31, 2018,
6. December 31, 2019, and
7. December 31, 2020.

That is to say, the CRA asked for information about clients with accounts from 2014 to 2020 worth over $20,000 Canadian at year's end.

Second, CRA asked for information from clients who had made cumulative deposits of more than $20,000 Canadian since opening their Coinsquare accounts.

Third, between 2014 and 2020, the 16,500 biggest accounts by trading volume were sought by CRA. Here, trading volume is described as the sum of the number of deals and the amount of coins traded.

The list of these customers' accounts, a detailed list of all deposits and withdrawals made into and from those accounts, a detailed list of all cryptocurrency trading activities, a list of deposit addresses, and any other information Coinsquare may have regarding these customers are the kinds of details CRA was attempting to compel from Coinsquare.

THE COURT ORDER

The Federal Court endorsed CRA's disclosure request in a brief court judgment. The Federal Court observed the CRA's request as justified since it was made against an ascertainable group of anonymous taxpayers, despite the fact that the CRA did not name any individuals in its disclosure request. Additionally, the CRA's request was made to confirm that they were complying with Canada’s crypto tax laws.

THE CASE OF COINSQUARE IN CONTEXT

It's probable that the resolution of the 2017 legal dispute between the IRS and Coinbase in the US had an impact on the present agreement between CRA and Coinsquare. After the IRS made a much more general disclosure request in the beginning, as we covered in the linked article, the US Court permitted the IRS to only compel disclosure for clients who traded more than a certain amount ($20,000 USD) over a specific time period.

In this case, the CRA's modified disclosure request contained three distinct references to a $20,000 CAD threshold in order to guarantee that as many taxpayers as possible are revealed to them while still adhering to the need for having an ascertainable reason. CRA has imposed further requirements on Coinsquare, requiring it to reveal 16,500 of its customers with the greatest trading volume.

This most recent disclosure request supports the decision in Canada v. PayPal Canada Co. and Canada (National Revenue) v. Roofmart Ontario Inc. that the CRA is allowed to compel the revelation of third-party information against an unidentified class of taxpayers even when the group size is very large. The only evidence the CRA needs to provide is that the group is ascertainable and the request was made with the intention of carrying out cryptocurrency audits.

WHAT THIS SIGNIFIES FOR CRYPTOCURRENCY HOLDERS IN CANADA

As we suggested in the US case, the disclosure request lodged against Coinsquare by the CRA is a manifestation of a worldwide trend where tax revenue authorities are pressuring cryptocurrency exchange firms to provide client information.

While we cannot say for sure, it is likely that the data collected by the CRA will be shared with other nations as part of international networks for tax implementation, such as the Joint Chiefs of Global Tax Enforcement between Australia, Canada, the Netherlands, the UK, and the US. This indicates that, in accordance with these tax enforcement agreements, information from international cryptocurrency exchange platforms may likewise be obtained under similar circumstances, shared with the CRA, and utilized to audit Canadian taxpayers who have cryptocurrency in their possession.

A VOLUNTARY DISCLOSURE APPLICATION CAN BE FILED TO ASSIST

Time is important to think about the voluntary disclosure program before any CRA tax audits for Canadian taxpayers who may have non-compliance concerns involving cryptocurrencies.

The following are the general qualifying requirements for the CRA's voluntary disclosure program (VDP):

• Voluntary: The CRA must be completely unaware of the taxpayer's unpaid taxes.
• Complete: The taxpayer is required to provide tax information for all tax years for which their filings were incorrect.
• Tax Due: Because of incorrect filings, the taxpayer must owing tax to the CRA.
• One Year Past Due: The taxpayer may only reveal information with respect to tax years for which the filing deadline has passed by at least one year.

In order to benefit from the penalty relief and interest relief of the general stream of the CRA's voluntary disclosure program, the Canadian taxpayer must show favorable facts about the following four elements even if the general eligibility requirements are satisfied. These elements include:

• Any attempt to evade detection;
• The dollar totals included;
• the number of years of noncompliance; and
• The ingenuousness of the taxpayer

In the event that a voluntary disclosure gets approved under the general stream program, all possible penalties will be waived, along with a portion of the interest. Particularly important is penalty alleviation. If unreported income is found through a tax audit, the CRA can and frequently does impose a gross negligence penalty, which is equal to 50% of the amount owed, as well as late-filing penalties.  Along with the tax and penalty amounts, interest is also added.

PRO TAX TIP-TAX GUIDANCE-COMPLIANCE AND PROPER DILIGENCE IN CRYPTOCURRENCY

If you have any questions about the complexities of your prior Bitcoin tax reporting or if filing a voluntary disclosure application will be advantageous for you, contact one of our experienced Toronto tax lawyers. Additionally, we have a great deal of experience defining cryptocurrency in terms of tax law and can offer tax advice regarding whether transactions count as capital gains, business income, or possibly both.  In every interaction you have with the CRA, we will uphold your rights. Regardless of whether you choose to contract with us or not, all speak with our students and expert Canadian crypto tax lawyers will be private and privileged.

FAQ: Frequently Ask Question

Does Coinsquare file reports to the CRA?

CRA's request for Coinsquare to reveal its financial information was granted by the Federal Court of Canada in an order made on March 19, 2021. The cryptocurrency exchange company must reveal its high-value accounts, according to this rule. As a result, Coinsquare must now submit to CRA a certain amount of its data, and it is expected.

What is the price per trade on Coinsquare?

The Coinsquare trading cost varies depending on the platform you are using, such as Bit Markets, a more sophisticated platform with a variety of order types, or Quick Trade, which offers a rapid trading service. Users of Quick Trade pay 0.20% for Bitcoin trades and 0.40% for BTC trades. On the other hand, Bit Markets levies fees of 0.1% for trades that provide liquidity and 0.2% for deals that remove liquidity. Additionally, withdrawals incur a 2% fee.

Does Canada impose taxes on Coinsquare?

Any transaction involving a cryptocurrency, including Coinsquare, is taxed in Canada. For taxes purposes, cryptocurrency is regarded as a commodity. Any cryptocurrency transaction is viewed as a capital gain or business income, both of which are theoretically taxable. Market value is used to determine the worth of any transaction that lacks a direct value.

Disclaimer:

"Only a general summary is provided in this article. It is only current as of the date of publishing. It hasn't been updated, therefore it could no longer be applicable. It cannot be relied upon since it doesn't offer legal advice, and it shouldn't be. Every tax position is different due to its own specific set of circumstances, thus it will not be the same as those described in the articles. A Canadian tax lawyer should be consulted if you have specific legal questions.