Policy Forum: Non-Fungible Tokens and Their Income Tax Treatment

Laura Gheorghiu ()
Additional contact information
Laura Gheorghiu: Gowling WLG LLP, Montreal

Canadian Tax Journal, 2023, vol. 71, issue 1, 83-99

Abstract: This article explores the legal and tax landscape applicable to non-fungible tokens (NFTs)—first, by providing a working definition of an NFT and explaining how NFTs work from a technical perspective, with real-world examples; and second, by exploring the unique income tax issues raised by NFTs as a class of cryptoassets separate from their fungible counterparts. Key features of NFTs are found to be (1) their non-fungible nature; (2) their role as a digital record of authenticity of the ownership of tangible or intangible assets, but not of the existence of the underlying assets; and (3) the ability to integrate further rights for creators, such as commission rights for each sale of the NFT by subsequent owners. The article posits that NFTs may not themselves constitute an actual property right, since the underlying assets are very rarely included in the NFT record. A working definition of an NFT is therefore proposed to be as follows: a blockchain-based record of authenticity of rights to a unique object that contains metadata about the object that it represents and a link to the location where the object or data about the object are stored. The purchase and sale of an NFT is a taxable event, whether made by the original creator (who minted the token) or a subsequent owner. The determination of whether the transaction is on income or capital account, whether the NFT is personal-use property, and whether other rules apply (for example, non-resident withholding tax rules) will depend on the exact nature of what is being sold. The determination of the source of the income and the application of treaties to exempt income is quite difficult. Also raising difficulty is the qualification of the commission that is earned on subsequent sales of the NFT.

Keywords: Blockchain; token; income tax; bitcoin (search for similar items in EconPapers)
Date: 2023
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.ctf.ca/EN/Publications/CTJ_Contents/2023CTJ1.aspx (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ctf:journl:v:71:y:2023:i:1:p:83-99

Ordering information: This journal article can be ordered from
Canadian Tax Foundation, 145 Wellington Street West, Suite 1400, Toronto, Ontario, Canada M5J 1H8
https://www.ctf.ca/E ... ns_ListingBooks.aspx

DOI: 10.32721/ctj.2023.71.1.pf.gheorghiu

Access Statistics for this article

Canadian Tax Journal is currently edited by Kim Brooks, Kevin Milligan, and Daniel Sandler

More articles in Canadian Tax Journal from Canadian Tax Foundation Canadian Tax Foundation, 145 Wellington Street West, Suite 1400, Toronto, Ontario, Canada M5J 1H8.
Bibliographic data for series maintained by Jim Lyons ().