currencies – Estimating Cryptocurrency Tax Gap


Estimating Cryptocurrency Tax Gap

I’m trying to do a rough estimate for the tax gap for cryptocurrency in Canada and I’m having a hard time producing it due to a lack of data on the topic. The tax gap is the amount of tax not paid that should have been paid, so it’s a type of measure of non-compliance with tax laws. In Canada, crypto assets are taxed when they are disposed of. They are taxed under business income or capital gains and could also be taxed under GST/HST. Business income tax applies to the full amount and capital gains tax applies to only 50% of the amount.

I am new to cryptocurrency and not quite familiar with the best data sources to look at. So far, here are my ideas to give a rough estimate of a possible upper bound for the tax gap:

Given that x% of the global cryptocurrency market is based in Canada, approximately $y in crypto transactions can be sourced to Canada. Under a very extreme assumption that all Canada attributed volume reflects unreported income taxable at the top rate of z%, cryptocurrency would contribute roughly $(zy%) to the tax gap, with the actual tax gap value being much lower. This $ (zy%) would serve as an upper bound. There are obvious issues with the estimate, hence why it is a very rough estimate.

To do this estimate, I need to figure out what the values of x% and $y are. Any suggested data sources to look at for this?

If anyone has suggestions of how I can formulate a better upper estimate or approximate a lower bound estimate, or if there are any good data sources to look at that could help me formulate a better estimate, it would be appreciated.

Thank you!

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