CRA treats Bitcoin mining as taxable barter transaction

Published by Thorsteinssons LLP & Ian Gamble

Context: In 1982 the CRA published its position on barter transactions, describing them as transactions “effected when any two persons agree to a reciprocal exchange of goods or services and carry out that exchange usually without using money”: IT-490. This type of transaction can result in income or expense, or the acquisition or disposition of capital property, on the same basis as if cash were the consideration on both sides. And for this latter purpose, the CRA will select that side of the barter that can be most readily valued.

Bitcoin mining treated as a barter transaction: In CRA Document 2018-0776661I7 (released August 21, 2019) the CRA was asked whether a taxpayer involved in Bitcoin “mining” should include the value of “mined” Bitcoin in income under s. 9. Bitcoin is of course a non-governmental, decentralized digital currency without a central bank or single administrator that can be sent from user to user on the peer-to-peer bitcoin computer network. Bitcoin “mining” is a process of updating the ledger of Bitcoin transactions, known as the blockchain. The “mining” is done by running powerful computers that race against other miners to guess a specific number. The first miner to guess the number gains the right to update the ledger of transactions and thereby receive payment in the form of newly-created (minted) Bitcoins. The CRA said that its barter-transaction policy from 1982 applies to such a Bitcoin miner. The miner must bring into its income the value of the Bitcoin received – being the leg of the barter transaction that is more readily valued. The CRA did not say who is to be treated as the counterparty to this barter transaction.

The takeaway: The CRA will always look for ways to impose tax on activities that generate the potential for economic profit, in this case resorting to its 1982 published position on barter transactions. But in this context, an organized Bitcoin miner is most certainly running a business as a source of income in kind (Stewart v. R., 2002 SCC 46), quite apart from the notion of a barter transaction.