Coinsquare to Disclose to the CRA the Identity of Certain Sellers of Cryptocurrency

We learned this week that the Federal Court recently ordered Coinsquare Ltd., a cryptocurrency trading platform, to disclose the identity of some of its clients to the Canadian tax authorities.

After a similar fight between this company and the IRS, Canadian taxation authorities have also been trying to get Coinsquare to disclose who its clients are, so as to ascertain tax liability of profit-making users, something Coinsquare has so far refused to do. For the Canada Revenue Agency (the “CRA”), given how difficult it is to determine which taxpayers are making profits by selling cryptoassets, platforms such as Coinsquare should be required to report to the authorities any transaction allowing Canadians to generate taxable profits, whenever transacting intangible assets of this kind, so as to avoid allowing such taxpayers to avoid tax liability too easily.

Even though the CRA initially requested that Coinsquare disclose the identity of all its customers since 2013, Coinsquare managed to negotiate much less onerous disclosure obligations. According to the recently issued Federal Court order, the company is only required to disclose the identity and assets of its biggest clients, those who meet a certain threshold. This corresponds to about 10% of Coinsquare users.

For the CRA, this was a first foray into the realm of cryptocurrency platforms, including to get them to cooperate with Canadian tax authorities in a way that increases the odds of collecting tax on profits made through the sale of cryptoassets by Canadians. Given the substantial profits now being made by some cryptocurrency traders, one can certainly understand the CRA’s motivation in attempting to get trading platforms like Coinsquare to collaborate.