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Crypto Exchange Must Share Client Data With Canada Tax Office

March 23, 2021, 5:06 PM

A major Canadian cryptocurrency exchange must hand over client information to federal tax authorities following a first-of-its-kind court ruling.

The Federal Court issued an order compelling Toronto-based Coinsquare Ltd. to divulge customer details to the Canada Revenue Agency as it expands its enforcement among cryptocurrency holders and traders.

Coinsquare, which plans to inform users about the order publicly Tuesday, must provide information on customer bank accounts, transactions, cryptocurrency types, trading activity, “know your customer” documentation and addresses, according to the March 19 order by Justice Peter Pamel.

The affected customers include those who have had accounts valued at C$20,000 ($16,000) or more on Dec. 31 in the years 2014 through 2020, according to the order.

The order is a “partial but significant victory” because the agency had originally requested all client data going back to 2013 but agreed not to pursue information on 90% to 95% of clients, according to Coinsquare, which has over 400,000 users.

“The request that came in would have been for a massive amount of data,” Stacey Hoisak, CEO and general counsel at Coinsquare, said in an interview Monday.

Similar Directives Ahead?

The court decision marks the first time the agency has used the order, called an unnamed persons request, on a cryptocurrency exchange. The agency issued it Sept. 18 and said it needed to ensure customers were complying with all duties and obligations.

The agency is very likely to send similar directives to other exchanges, and the agreement sets a strong precedent for protecting privacy, Hoisak said.

The ruling also covers customers who accumulated C$20,000 or more since opening their accounts and the 16,500 largest customer accounts by trading volume in Canadian dollars and by number of trades between 2014 and 2020.

The order is the result of a negotiated agreement between both sides and requires Coinsquare to comply by April 6, Hoisak said. The company will also contact affected clients privately.

The tax agency has taken a growing interest in cryptocurrency since launching a dedicated unit for the sector in 2018. It has expanded cryptocurrency audits, hired specialized auditors, and built technical expertise.

The agency taxes revenues from cryptocurrency transactions as business income or as a capital gain, depending on the situation.

The CRA couldn’t be reached for comment.

The case is T-1114-20: Minister of National Revenue v Coinsquare Ltd.

To contact the reporter on this story: James Munson in Toronto at correspondents@bloomberglaw.com

To contact the editors responsible for this story: Meg Shreve at mshreve@bloombergtax.com; Vandana Mathur at vmathur@bloombergtax.com

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