CRA comments on the timing of disposition on the insolvency of a bitcoin platform operator

CRA applied routine tax concepts to interesting facts.

Following the 2014 insolvency of a Japanese bitcoin platform operator (“Mt. Gox”), which had permanently lost 650,000 bitcoin, the Tokyo court (in 2021) approved a “Rehabilitation Plan” which in general terms gave the former platform users a choice between receiving, on or before October 2025, an “Early Lump-Sum Repayment” (so as to receive payments in cash and Bitcoin Cash totaling approximately 21% of their approved claims) or a “Final Repayment” (entitling them to payments based on the value of the remaining assets of the estate at an undetermined date in the future). The taxpayer elected to receive the Early Lump-Sum Repayment.

CRA found that former users of the Mt. Gox platform did not hold proprietary rights over the bitcoin held through the platform, including those that Mt. Gox had lost, and instead owned contractual claims against Mt. Gox, so that there was no disposition by them when the underlying bitcoin was lost. A disposition of the taxpayer’s claim would instead be considered to have occurred in the year of receipt of the Early Lump-Sum Repayment. Amounts received from the estate in the form of crypto-assets (i.e., the Bitcoin Cash) would be considered to have been “received” by the taxpayer as creditor when the Bitcoin Cash was credited to the taxpayer’s account with a cryptocurrency exchange.

Neal Armstrong Summary of 30 October 2024 Internal T.I. 2023-0996541I7 under s. 248(1) – disposition – (a) and s. 54 – proceeds of disposition.