The bitcoin, a decentralized digital currency conceived in 2008, has experienced exponential growth in use over the past 2 years. Bitcoin ATMs have begun to spring up in cities across Canada—including in Ottawa’s Byward Market and on Spadina Avenue in downtown Toronto.
Demand for the currency has also penetrated the employment world, with some employees seeking pay in Bitcoin in lieu of the Canadian Dollar. Waterloo-based payroll company, Wagepoint, reported this year that employees from approximately 10 firms with which it has dealings have opted to receive their wages in Bitcoin.
While payment of wages in digital currency may be the way of the future, it also raises a number of interesting issues for workers and employers alike:
Fluctuating value
Unlike the Canadian Dollar, Bitcoin is neither controlled nor backed by a central bank. As such, it can experience wild fluctuations in value. To give an idea of the range involved, in just the past year the currency went from a high of $1,240 (US) in December 2013 to its current value of approximately $356 (US). Given such dramatic shifts in value (especially compared to the standard 2 percent inflation rate target for the Canadian Dollar set by the Bank of Canada), it may be unwise for any employer or employee to agree to remuneration in Bitcoin, without first tying it to a Canadian Dollar value equivalency. To give a practical example of how this safeguard would function, salaries can be contracted to at a fixed Canadian Dollar value (i.e. 60k per year) with a commitment to pay that sum out at the present value of Bitcoin per pay period.
Employment Standards Act considerations
- Any employment contract which deals exclusively in Bitcoin payment may be unlawful, as it is conceivable that the value of the Bitcoin could fall below the current Ontario minimum wage as prescribed in section 11(1) (currently $11.00/hr)—thus rendering related provisions voidable.
- Under the Employment Standards Act, vacation pay pursuant to section 35.2, equal to at least 4 percent of wages, must also be paid to employees. Due to the volatile nature of the Bitcoin this raises issues for employers in calculating the appropriate amount to pay.
Tax implications
The tax implications of Bitcoin for both employers and employees remain unclear. In the United States, the IRS has determined to treat Bitcoin as ‘property’, not a currency and recently there has been indication from the Canadian government that it also does not consider Bitcoin to be a currency.
As such, for taxation remittance purposes it is likely a good idea to calculate all necessary deductions in Canadian Dollars at source, and then exchange this amount into Bitcoin before issuing as salary to the employee.
Vey Willetts LLP
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