In today’s episode, Jason is going to talk to Fabio Campanella of the Campanella group. Fabio is a taxation and state planner and is associated with the Capital Group, a professional corporation registered with CPA Ontario.
Episode Highlights:
- 1.10: Fabio is going to talk about what the realities are when it comes to cryptocurrency transactions.
- 2.08: Fabio says this is a new asset class, and in essence, it relies on something called blockchain technology, which is a network. It is a network of computers that double-checks each other’s work to ensure that everybody who says they have this currency has it and a transaction has occurred.
- 3.16: Taxable residents of Canada are taxable on their worldwide income. That means any money that you make anywhere in the world or any transaction that can be measured in Fiat currency and Canadian dollars is potentially a taxable transaction.
- 4.41: Jason says, the crypto currency that is accepted in the most places are a Bitcoin, which makes it the most relevant to the topic of taxation.
- 5.13 The next pure tax concept that we are looking at is the concept of business income versus capital gain, says Fabio.
- 5.20: You are left with two types of classification for income in Canada, and that would be a business type of income or also known as an adventure in the nature of trade, which is essentially taxed at 100% of your marginal tax rate.
- 6.47 Fabio recommends that if you open up the Income Tax Act, you are not going to find it when you look up Bitcoin. If you look up to cryptocurrency, you are not going to find it; we don’t have specific laws dealing with these types of asset classes yet.
- 7.10: Fabio explains what they are looking for in a business activity: you are carrying on an activity for commercial reasons. In a commercially viable way, you undertake clear businesslike activities in a businesslike manner that could include preparing business plans and acquiring capital assets or inventory.
- 8.32: Jason says CRA leaves it open to interpretation based on the actual fact pattern of what happened with the asset in the first place, and there is a couple of presidents around this.
- 9.14: The interpretation of whether something is a business, or an investment is something that is very commonplace in different places of the law, and it does befuddle some people, says Jason.
- 10.05: Fabio explains, you buy 100 shares of any Canadian bank stock in a taxable brokerage account. You collect the dividends in, and you reinvest them in a drip. You hold that stop for ten years. You never traded again, and then after 10 years you sell it. You are not a stockbroker. You are not in the securities industry. You are pretty likely to get a capital gains treatment.
- 11.04: The first thing that people need to understand when it comes to Bitcoin and other cryptocurrencies is that there is actually and putting aside, over counter derivatives.
- 12.28: From a mining perspective, Fabio doesn’t think any individuals nowadays are truly mining Bitcoin.
- 13.11: You are providing a service and maintenance of the Ledger in exchange for a possible windfall, which essentially, Jason means it is not guaranteed but nevertheless it is a business, there is no way to make money on unless from some business.
- 14.23: Fabio says there are a lot of incentives available here like tax incentives, and these are indirect. It is because you want to classify this business income.
- 15.32: Fabio suggests, if you are going to accept Bitcoin in a transaction, no matter how anonymous the transaction is, it really doesn’t matter if you are going to accept Bitcoin if you are going to accept seashells, if you are going to accept diamonds, what is happening here is the CRA will go to in essence, the barter rules.
- 17.25: Bitcoin transaction is the same as any other transaction. The issue is because it is not recognized as an actual currency; it is recognized as almost as a commodity under the eyes of tax at the moment.
- 19.04: If you’re doing something shady, or you are trying to extort people, or you are trying to do a CRA scam that is the currency of choice, says Jason.
- 19.30: From a speculative standpoint, personal tax liability on Bitcoin is incurred when cryptocurrencies are either sold and realized as currency or exchanged for another cryptocurrency.
- 23.50: The more knowledge or expertise you have and security for crypto in those sectors, the more the CRA will lean towards business income.
- 26.19: The more we use financing the more it looks like a business income rather than long-term speculation.
- 27.15: Fabio says that we don’t necessarily need to be taking Google ads and paid acts in advertising. But you are advertising to the public that you are doing this, and you are looking for other people possibly to put money in order to finance your trades.
- 28.06: Jason says there are other examples of digital currencies around the world that have worked, not necessarily Bitcoin.
- 31.44: Fabio recommends going through the checklist, and then you have to make the determination along with competent somebody. You know you’re primarily it’s going to be an accountant if it’s a huge transaction, it could be attacked, specialist accounting or tax specialist lawyer, but that is the methodology that this CRA is going to utilize. And that is what people who trade in big points utilize as well.
- 32.57: The thing about Bitcoin is there is an immutable Ledger showing every transaction.
3 Key Points:
- Fabio explains how the CRA looks at your transactions regarding business income or capital gains?
- Fabio talks about the buying and selling of cryptocurrency from an investment or speculative standpoint.
- At any given second, you can really get a quote in Canadian dollars on Bitcoin. Fabio explains if somebody pays me for my service in Bitcoin or buys a product from you. In Bitcoin, that transaction will simply be measured in the equivalent Canadian dollars.
Tweetable Quotes:
- “Business losses are 100% deductible at the margin, whereas capital losses are only half deductible, but only against capital gains.” – Fabio
- “We established that if you want to have a game, you are going to want it as the capital game.” – Fabio
- “Everybody knows page stocks, and that fact pattern can switch over to Bitcoin. It can switch over to anything real, estate, anything really, but that’s just the basics.” – Fabio
- Theoretically, when you mine in cryptocurrency when you mine Bitcoin, you have this supercomputer, and it is verifying crazy mathematical transact problems, and you are rewarded for doing this work.” - Fabio
Resources Mentioned
Transcript
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