Bitcoin is not any country’s currency. That is why Canada Revenue Agency (“CRA”) deems Bitcoin transactions as Income Tax Act (“ITA”) “property” being bartered for something else. CRA also deems barter, such as Bunz, as taxable income for both parties. This hidden deeming, or uninformed consent, is why many Canadians equate income tax to financial rape. However, if you rebut the deeming, Bitcoin and bartering could both qualify as private property income. “Apu’s Theory”, our research on how Canada’s income tax seems to really work, could help you rebut that deeming.
“Apu’s Theory” shows how Bitcoin, and bartering, could be exempt income
Bitcoin is in the news a lot lately. Bitcoin, like Ethereum, Dash, Monero, Dogecoin, and other digital currencies, are not a currency of any country. In Canada, this means you cannot pay income tax with anything other than Canadian currency. However, you can invest in Bitcoin, or buy things with it.
Naturally, CRA wants to tax Bitcoin transactions. Taxing it means it is deemed from the four main “sources of income”: Income Tax Act (“ITA”) “business”, ITA “property”, ITA “office”, or ITA “employment”. A transaction can be as simple as selling something on Craigslist for Bitcoin. Or it can be open-air trading in Canadian cities through Bunz. CRA deems that as a “source of income” from ITA “property”. Such “property” is then exchanged, or bartered, for something else.
CRA deems barter as taxable income for both parties in their Interpretation Bulletin IT-490. It also deems barter as taxable income from a “source of income” such as business, employment, or (capital) property. This includes online bartering sites such as Bunz. Are you starting to see a pattern here?
CRA deems barter as taxable income for both parties
However, CRA Interpretation Bulletins are not law. The law is the ITA.
The ITA defines many words, but it does not define “income” nor “source”. This means there is no ITA definition for “source of income”. Yet CRA often uses it. Why? What are they hiding?
Apu’s Theory concludes the ITA deems you receiving “sources of income” for an ITA “office” that you represent as an ITA “officer”. However, using that ITA “office” is a privilege. That privilege has a fee. That privilege access fee seems to be income tax. In short, not defining “source of income” obfuscates how “sources of income” become taxable. That is why the Government hides this.
But what if you decline being deemed as holding that ITA “office”?
There is no definition for “source of income” which makes income taxable
If you decline to hold the ITA “office”, then you should not owe any privilege access fee. Apu’s Theory concludes this means your income then qualifies as ITA “exempt income”. After all, self-assessment is a cornerstone of Canadian tax law. You assess your amount of income, plus also the type of income – is it your private property, or is it Canada’s “public money” belonging to the ITA “office”?
This means barter transactions, including Bunz, and transactions with cryptocurrency, such as Bitcoin, could qualify as private property income for whoever decides to complete the transaction while declining to hold the ITA “office”.
One of CRA’s assessment methods is by net worth. CRA deems you have a certain amount of income in order to live in a certain area or Postal Code. (They also deem your type of income is one of the “sources of income”). It is up to you to rebut their deeming. If you do not, their deeming, no matter how ludicrous, then becomes an agreed fact.
That is why you must report all income to CRA. However, Apu’s Theory concludes you cannot report private property income on CRA’s T1 form. On top of that, CRA does not provide a form to report private proprty income! Basically, it is entrapment to get you to voluntarily convert your private property income into net taxable income.
CRA does not provide a form to report private property income
Apu’s Theory concludes report any private property income by letter with the SIN as a Social Insurance Number instead of as a “social insurance number” that CRA uses on their T1 forms. We think it is even better if you pre-emptively declare your intent with something like our ISD-1 form.
Many people think digital currencies transactions, and barter, such as Bunz, means not having to report them to CRA. That is dangerous. It is also illegal. The ITA requires you report all income. Just be sure to report the right type of income on the right return of income.