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.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.