Principal Issues: A taxpayer purchased a claim for bitcoins at a lower price than its face value. The bitcoins were payable by an insolvent arm's length foreign corporation. Ten years after the acquisition of the claim, the corporation was liquidated and the taxpayer received bitcoins in settlement of the claim, which was then fully extinguished.
1) Was there a "disposition" of the claim for the taxpayer on the receipt of the bitcoins?
2) If so, what are the tax consequences of the disposition of the claim for the taxpayer?
3) What is the adjusted cost base of the bitcoins received in settlement of the claim?
Position: 1) Yes.
2) The acquisition of the claim may have been made in the course of an adventure or concern in the nature of trade, in which case the gain on the disposition of the claim would be income for the taxpayer. Otherwise, if the claim is capital property, provisions in subdivision C of Part I would apply.
3) Cost of the bitcoins should be equal to the fair market value of the bitcoins on the disposition of the claim. If the bitcoins are not capital property, it is not accurate to refer to the adjusted cost base.
Reasons: 1) Wording of the definition of "disposition" in subsection 248(1).
2) Definition of “business” in subsection 248(1) and criteria established in the caselaw.
3) Cost should be equal to the FMV of the property given to acquire the bitcoins.
