Photo by Rafael Minguet Delgado
The taxpayer in Amicarelli v. The King was a full-time employee. In 2017, after hearing from people she knew that they had made hundreds of thousands of dollars from investing in bitcoins, she decided to make the jump and open an account with QuadrigaCX, a Canadian cryptocurrency exchange.
In order to fund her purchase of bitcoins, the taxpayer used her savings, withdrew money from her RRSP, remortgaged her house and even took advances on her credit cards. In total, she invested $473,241.74. By late 2017, her bitcoins were worth more than $2M. Then, all of a sudden, her account balance fell to nil. This is shortly before QuadrigaCX became tangled in a widely publicised scandal related to fraud and mismanagement, which eventually led to its collapse in early 2019.
The Court had to determine whether the taxpayer in fact lost $473,241.74 and, if so, had to characterize the loss as either on account of income or capital.
Although the records were incomplete, the Court relied on the taxpayer’s testimony and the evidence as a whole to conclude that it was more likely than not that she purchased the bitcoins and then lost them through fraud.
As to whether the loss she suffered was on account of income or capital, the Court referred to the definition of business in subsection 248(1) of the Income Tax Act, which is non-exhaustive and includes activities that may not resemble conventional business activities, such as “adventures in the nature of trade.”
The Court found that the taxpayer had a subjective intention to profit and that her intention could objectively be corroborated by the fact that she regularly purchased bitcoins and monitored her account and the market. The Court stated that her activities “were more than dabbling and were more akin to activities of a trader or dealer.” The fact that the taxpayer was willing to finance her bitcoin purchases at high cost by withdrawing money from her RRSP, taking a second mortgage and running up her credit card balance supported her trading as being an adventure in the nature of trade.
In light of the above, the Court concluded that the taxpayer suffered a non-capital loss, which by its nature will allow her to use it to offset against her other sources of income. Although a small consolation for all that she went through, it is still a positive outcome from a tax perspective.