Getting Paid in Bitcoin
One of the most popular Go Full Crypto podcasts to date, was episode 2, where Keegan explains how he paid off his student debt with Bitcoin. The hypothesis is that people enjoyed learning about how Keegan used a digital currency, commonly thought to have no intrinsic value to get rid of something most young people are dealing with; Student Debt. Now, Go Full Crypto explores how they keep their own Bitcoin reserves for various reasons. The underlying company to Go Full Crypto is The Atlantic Blockchain Company, and so we will be referring the company when talking about how we expensed a business purchase with Bitcoin.
Expensing Purchases
If you’re not a business owner, then the idea of expensing a purchasing might seem a little foreign. So first things first, lets break down expensing purchases. When a company makes money, they have to pay income tax, just like individuals. When a company sells goods or services, they need to charge taxes for the government. In the case of Nova Scotia Canada, that tax is 15% of the purchase. This money is not given immediately to the government. Instead, it’s collected, and put aside by the bookkeepers until tax season comes around. One way that the company can reduce their “tax burden”, that is, the amount they owe to the government, is by making purchases and claim the tax. So in effect, the company has spent money on a purchase, and now owes less of the tax they’ve collected from sales. If an individual were to purchase a good or service, they don’t get to reduce their tax burden for the tax paid on the purchase. This is one of the ways that companies, and business owners pay less tax to the government.
Keegan’s New Business Computer
It was time to buy me a new business computer. He gave his old one to his sister after her old one broke. I decided that I wanted a new 2020 Macbook Pro. The one we chose cost around $3000. For the sake of simplicity, we’re going to say that the laptop cost $3000 plus tax, so $3450 in total. Three thousand for the computer, and four hundred-fifty for the tax.
The Purchase
How we actually went about purchasing the Macbook went like this. I bought the Macbook using my personal credit card. The money came out of my personal bank account. In order for the business to claim the expense as its own, it needs to then reimburse me for the purchase.
The Reimbursement
Myself, as a director, cofounder, and treasurer for the company, decided that I wanted to be reimbursed in Bitcoin. The Atlantic Blockchain Company keeps a certain amount of their reserves in Bitcoin as they see it as a better way to store, and preserve wealth than keeping cold hard Canadian dollars in their bank account. Occasionally, ABC will pay their contractors using bitcoin, as well as their employees. This was a great opportunity for me, (a bitcoin enthusiast) to get ahold of a good chunk of Bitcoin. Instead of getting reimbursed in Canadian dollars, I got reimbursed in Bitcoin.
The Transaction
This is not actually so much of a taboo thing to do. The process of reimbursing in bitcoin is not dissimilar to reimbursing in the Canadian dollar. I drafted an expense claim, with the final figure ($3450.00 CAD) on it. This number is passed to the company accountant who process the expense claim. The company has more than $3450 worth of Bitcoin on the books, and so can withdraw funds from this account in order to satisfy my claim. When the transaction was made, the price of bitcoin at the time of the transfer needs to be recorded. The time of the transaction is known to the world, as it has taken place on the bitcoin blockchain. Every valid transaction is given a transaction id, or hash.
The Salary
At one point in the past, I took his salary in Bitcoin. This was when I was working on another cryptocurrency project called peerplays. The company I was working for was called PBSA, and they employed me to work on an open source codebase that they are responsible for maintaining. Since they had raised funds in a ICO, they had a lot of their own reserves stored in bitcoin. I was given the opportunity to accept my salary in Bitcoin. I agreed to this because naturally, I have more opportunity and freedom to grow my money when I have more bitcoin. This philosophy carried over to the management of ABC. I opt to receive my salary in bitcoin, then convert what I need to into Canadian dollars.
Capital Loss or Capital Gain
Anytime the company spends bitcoin, they then need to claim either a capital loss, or a capital gain on the bitcoin that was just removed from its books.
The company claims a capital gain if the price of bitcoin was more than what it purchased the bitcoin for.
The company claims a capital loss if the price of bitcoin was less than what it purchased the bitcoin for.
In the case of the Macbook Pro expense, Atlantic Blockchain company had recently acquired an amount of bitcoin at an average price of around $15k. When the transfer took place on September 11th, the price of bitcoin was around $13500. Therefore the Atlantic Blockchain Company needs to report a capital loss when they report their taxes to the Canada Revenue Agency.
Cryptocurrency Taxes
Doing your crypto taxes is absolutely something that needs to be done if you intend on dealing with cryptocurrency. As a general rule, every single transaction that is done within the realm of cryptocurrency requires some sort of analysis and reporting to the Canada revenue agency. The rules for doing your crypto taxes vary from country to country as many regions have yet to solidify their rules on how they would like their citizens to process cryptocurrency transactions.
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