Can I Claim an SR&ED Expense In Bitcoin?
Bitcoin has become an incredibly popular cryptocurrency – but can you claim payments made in Bitcoin as an SR&ED expense?
You may have heard about a digital currency called Bitcoin, which used to be a fringe online currency that has, in recent years, gone mainstream as a method used to make online payments. It is considered to be a “cryptocurrency”, which is defined as “a digital or virtual currency that uses cryptography for security,” 1 making it difficult — but not impossible — to counterfeit. According to the CRA, “Bitcoins are not controlled by central banks or any country, and can be traded anonymously. Bitcoins can be bought and sold in return for traditional currency, and can also be transferred from one person to another.” 2
As of February 2015, Bitcoin was being accepted by 100,000 merchants worldwide.3 Bitcoin has been called “a safe, appreciating and decentralised digital asset”,4 which has only added to its growing popularity.
Of course, Bitcoin is not the only alternative currency in the market — though it is certainly the most popular. There are literally hundreds of cryptocurrencies,5 with Litecoin, Ethereum and Zcash being other examples of new currencies.
If you are a technology start-up, you might be tempted to pay your subcontractors in Bitcoin or another alternate currency of your choice. However, can you claim payments made in Bitcoin as an SR&ED expense?
How the CRA Views Bitcoins
It might be first worth noting that the CRA does recognize bitcoins and other alternative currencies. The CRA considers payment by bitcoin to be akin to making a barter transaction when bitcoins are used to buy goods or services, and there are rules that apply to these transactions for tax purposes. When it comes to trading bitcoins for profit, there are tax implications there, too.
The flipside, though, is that when we talked to a senior officer at the CRA about claiming bitcoin payments as an SR&ED expense, the official noted that bitcoins are not considered to be a government-issued currency. That means, the CRA — for this purpose — does not consider bitcoins to be actual money, and you cannot claim bitcoins that have been paid out as an SR&ED expense.
Ask for a Ruling from the CRA
However, if you do not want to take this government officer’s word for it, you do have the option of asking for an income tax ruling from the CRA before you file your corporate taxes. You can find out more information about rulings on the CRA’s website.6
You should ask for a ruling well in advance as they are issued on a “first-come, first-served” basis.
You should also note that there is a cost associated with pursuing an income tax ruling from the CRA. The fee is $100 (plus applicable tax) for each of the first 10 hours, or part of an hour, and $155 for each subsequent hour, or part of an hour, spent on the ruling.
Requests for rulings may be mailed, faxed, or emailed to the CRA at:
Income Tax Rulings Directorate
Canada Revenue Agency
11th floor, Tower B
Place de Ville, 112 Kent Street
Ottawa ON K1A 0L5
Fax: (613) 957-2088
Do you have experience claiming cryptocurrency as an SR&ED expense?
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- Crypto Currency Facts. (date unknown.) How Does Cryptocurrency Work? Retrieved from: http://cryptocurrencyfacts.com/how-does-cryptocurrency-work-2/. ↩
- Canada Revenue Agency. (December 3, 2014.) What you should know about digital currency. Retrieved from: https://www.canada.ca/en/revenue-agency/news/newsroom/fact-sheets/fact-sheets-2013/what-you-should-know-about-digital-currency.html. ↩
- Cuthbertson, A. (December 3, 2014.) Bitcoin now accepted by 100,000 merchants worldwide. Retrieved from: http://www.ibtimes.co.uk/bitcoin-now-accepted-by-100000-merchants-worldwide-1486613. ↩
- Young, J. (February 27, 2016.) Why Bitcoin Continues to become Increasingly Popular. Retrieved from: http://www.newsbtc.com/2016/02/27/bitcoin-continues-become-increasingly-popular/. ↩
- Prableen, B. (April 21, 2017.)The 6 Most Important Cryptocurrencies Other Than Bitcoin. Retrieved from: http://www.investopedia.com/tech/6-most-important-cryptocurrencies-other-bitcoin/. ↩
- Canada Revenue Agency. (April 22, 2016.) Income Tax Information Circular. Retrieved from: https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/ic70-6r7-advance-income-tax-rulings-technical-interpretations/ic70-6r7-advance-income-tax-rulings-technical-interpretations.html#sec4. CRA has updated these terms (September 11, 2022) Income Tax Information Circular. Found at: https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/ic70-6/ic70-6-advance-income-tax-rulings-and-technical-interpretations.html ↩