Major cryptocurrency marketplace must fork over details of thousands of clients to CRA, court rules

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OTTAWA — One of Canada’s biggest cryptocurrency trading platforms has to fork over the identity and transaction data for tens of thousands of its clients to the Canada Revenue Agency.

In a ruling last week, a Federal Court judge ordered Toronto-based Coinsquare to provide the tax agency with a significant trove of information about all its clients who had deposited or at any point held a total of at least $20,000 in an account since Jan. 1, 2013.

In addition, the cryptocurrency exchange has to provide specific details about its 16,500 top active users, both in terms of number of transactions and total earnings, between 2014 and 2020.

The information the company must provide to CRA includes a list of all active or inactive customer accounts that meet the above criteria, as well as a detailed listing of all their transfers and trading activity (going as far as requiring the date, time, amount and fees paid on each transaction) and deposit addresses.

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Coinsquare is a crypto marketplace that allows users to buy and sell (or “trade”) a range of digital currencies such as Bitcoin or Ethereum.

The CRA had originally requested to receive all information about every single Coinsquare client in the past seven years.

In a statement, a CRA spokesperson said the agency would use the information — obtained via a legal tool called an Unnamed Persons Requirement (UPR) — to ensure all Canadians trading cryptocurrencies on Coinsquare were paying their fair share of taxes.

“Because the CRA does not know the identity of Coinsquare’s customers, a UPR is the only means available to realize this goal. The CRA is currently in the process of serving Coinsquare with the requirement,” Sylvie Branch said by email.

In an interview last month, the CRA’s head of audits and verification explained that Coinsquare was chosen for the agency’s first UPR in the cryptocurrency space because its name kept on appearing during auditors’ work.

“Coinsquare came up in a lot of our audits,” Ted Gallivan said. “And so then we decided that that would be the first, but not the last, UPR we filed.”

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Coinsquare said the Federal Court ruling was a “partial but significant” victory for the company because it had succeeded in limiting the number of affected clients.

“Instead of providing the CRA with all client data dating back to 2013 as was initially requested, Coinsquare and the CRA have agreed that information relating to 90-95 per cent of our clients will not be disclosed,” the company said in a statement Tuesday.

“We hope that our victory will set a precedent for other companies in the cryptocurrency industry to defend their clients’ privacy and to limit any disclosure to only what is absolutely required under Canada’s tax law.”

Coinsquare came up in a lot of our audits

The court’s decision, a first of its kind for the CRA involving a cryptocurrency company, is likely to have important ramifications on how the agency deals with the growing threat of tax evasion using cryptocurrencies, says Queen’s Law associate dean and tax expert Arthur Cockfield.

“I’m glad to see the CRA going after cryptocurrency trading and its user base because there is evidence that cryptocurrencies are being used to promote various crimes like money laundering, and maybe tax evasion,” he said.

“I think this is an initial signal that hey, cryptocurrencies aren’t the Wild West where anything goes and any crime can be committed,” he added. “I’d expect to see more of this in the future.”

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David Piccolo, tax lawyer at Tax Chambers, says that CRA will likely use the information received from Coinsquare as a “stepping stone” to find other Canadians who are trading cryptocurrencies on other markets as well.

“CRA wants to know transaction identifiers for these accounts. So presumably they can go into the Blockchain to track that, which might get them to other individuals which might not be on Coinsquare’s platform,” Piccolo said.

“Coinsquare might be the starting point that leads off into all sorts of side audits and additional information. It’s the first drop in the pool, and we’ll see the ripple effect as time passes.”

• Email: cnardi@postmedia.com | Twitter: ChrisGNardi