Abstract
Abstract : Although guidance has previously been given in relation to the characterisation and taxation of cryptocurrency-related income, the inclusion of the words “any cryptocurrency” in the definition of a financial instrument in the Income Tax Act marks an effort to provide legal certainty at a point where doing so is progressively becoming a necessity. Although in basic terms this appears to provide a basis on which to distinguish between cryptocurrency held as trading stock or as capital, these rules do not exist in a vacuum. Consequently, other factors inherent in the taxation of cryptocurrency-related income must be considered by an affected taxpayer, including the determination of the expenditure incurred in proportion to any percentage of cryptocurrency held or disposed of, or the ascertainment of an arm’s length price in an open market in certain instances. The above inclusion also has particular consequences for transactions between connected persons. In particular, this paper analyses the resulting operation of the corporate roll-over provisions in relation to transfers of cryptocurrency within a group of companies. Additionally, the implications on the treatment of such income attributable to a controlled foreign company are also examined. Further informing the disposal of any asset in this vein is the principle that transactions between connected persons should be conducted as if between independent persons dealing at arm’s length, which is briefly discussed in context. The legislative provisions discussed above are thereafter contrasted and analysed to determine whether any incongruencies exist in their application, with a view of ascertaining whether the above inclusion will lead to a dissimilar result to other financial instruments in this context. A decision of whether to enter into a transaction is often based on a multitude of factors, not the least of which including the tax consequences thereof. As such, this paper provides expository analysis of the relevant provisions relating to such group transfers to determine whether the implications of the above inclusion are consistent with the objects of the Act, or lead to an unpropitious outcome for the taxpayer.
LL.M. (Tax Law)