Canada's Federal Tax Agency Is Reportedly Auditing Cryptocurrency Investors

Canada’s Federal Tax agency, the Canada Revenue Agency (CRA), has reportedly started auditing cryptocurrency investors, who are asked to fill out a comprehensive questionnaire on their cryptocurrency-related activities.

According to Forbes, the CRA has in the past dealt with scammers who called Canadians demanding supposed tax payments in bitcoin, and as such is presumably looking into the nascent industry to find out more. CRA Project Oversight Director Jared Adams has in the past hinted bitcoin could be used to launder money via social media.

When contacted by Forbes, the CRA revealed through a statement that it “understands that a vast majority of middle-class Canadians pay their fair share,” but that it’s committed to ensure there are no exceptions. It added it’s committed to adapting its organization to “keep pace with evolving global services and products.”

As such, back in 2017 it established a dedicated cryptocurrency unit to “build intelligence, and conduct audits focused on risks related to cryptocurrencies.” It added:

This unit has enhanced the CRA’s ability to monitor and enforce compliance in areas of emerging risk, including the cryptocurrency space. There are currently over 60 active audits related to cryptocurrency.

The agency’s efforts in the space, the statement reads, include a commitment to monitor emerging platforms and business models, as well as a “special focus on the sharing economy and digital currencies.”

Protecting its own assessment systems, the CRA didn’t reveal any information on the criteria it uses to select individuals it’s set to audit, but noted it uses a “combination of advanced analytics and business intelligence activities to ensure that we pick the highest risk files to audit while promoting a fair tax system for all Canadians.”

Before linking to educational material on cryptocurrency taxes in the country, the CRA wrote:

The CRA is also committed to helping taxpayers understand their tax obligations when using digital currencies, and to remind them that using digital currency does not exempt consumers from their tax obligations.

The CRA’s Questionnaire

In the questionnaire it sent cryptocurrency investors, the agency asks individuals to describe their involvement in the space. Per Forbes’ report, the cryptocurrency-related part of the questionnaire is 13 pages long, and has 54 questions – some with subquestions – in it.

Among the questions, there are some related to mixing services and tumblers, which are often used to obfuscate the origins of funds and help users remain private. There are also some related to exchanges like ShapeShift and Changelly, which don’t require know-your-customer (KYC) checks.

These exchanges, however, aren’t as privacy-focused as it’d seem. Changelly has revealed it may withhold users XMR if it deems it necessary, while ShapeShift has added a ‘mandatory account’ policy, forcing users to sign up with their emails before trading.

The CRA’s questionnaire digs deeper, however, and even asks individuals to list all their cryptoasset addresses not associated with a custodial account. The question even tells users not to include their private keys in the response.

Other questions involve participation in initial coin offerings (ICOs), cryptocurrency mining, and income coming from node-related operations. Near the end, the questionnaire clarifies the “questions are not exhaustive,” and additional information may be required.