A vacant lot in the Uplands 鈥� one of North America鈥檚 premier residential developments near Victoria, B.C.鈥� is on the market and looking for a Bitcoin buyer. In a neighbourhood that prides itself on history and tradition, lot owner Hugo Donais could make Canadian history with one of the first bitcoin residential real estate deals.
The lot at 3165 Midland Road, with an asking price of $2.5 million, was originally listed in the standard fashion in November. A lull in the luxury market has motivated Donais to add the Bitcoin option this week. Donais is hoping the additional payment option will give him more prospective buyers by potentially attracting international investors.
In a 2017 Canadian Market Report, Greg Carros, a license partner for Engel & V枚lkers Vancouver, noted that 85 per cent of luxury property transactions in Vancouver are international buyers, the majority from China. Pairing that with the Financial Times claim that 98 per cent of recent bitcoin transactions originated in China, Donais may be playing his cards right.
In China, citizens are capped at taking no more than $50,000 U.S. out of the country, and in 2017 new regulations were put in place to prohibit the exchange of yuan for real estate, making it hard for investors to get money out of the country. Bitcoin can circumnavigate those restrictions as it is a decentralized system that is not controlled by central banks or any country, and can be traded anonymously. It is a way for foreign buyers to move money.
But Donais鈥檚 decision is not without risks.
As a financial advisor, Donais was clear that he does not endorse or recommend the process for others unless they have a deep understanding of the market and get comprehensive professional tax and legal advice to appreciate all the possible consequences and risks associated.
鈥淭his is a transaction that I am comfortable with, but I don鈥檛 necessarily recommend it for others,鈥� said Donais. 鈥淚 think people should be careful. I do this for 12 to 14 hours a day so I have a comprehensive understanding of it. It is extremely risky if you don鈥檛 understand all the different layers of complexity.鈥�
One of the layers of complexity is that the deposit and the realtor鈥檚 commission can not be paid in Bitcoin or any other cryptocurrency due to FINTRAC (Financial Transactions and Reports Analysis Centre) responsibilities under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA). Basically, when there is a large cash transaction, realtors are required to report the identities of those involved in the transaction. And the point of Bitcoin is that it is anonymous.
鈥淲hile cryptocurrencies, such as Bitcoin, can be used legitimately for many purposes, there are also significant risks associated with them, including the risk that the currency may be used to disguise the source of money derived from criminal activities 鈥� commonly known as money laundering,鈥� said a representative from Real Estate Council of BC. 鈥淏uyers can legally use cryptocurrencies to purchase real estate, but brokerages cannot accept deposits in cryptocurrencies, because cryptocurrencies exist outside of the purview of banks and governments so they cannot be held in trust.鈥�
When asked if they have statistics on how many houses or properties have been purchased using Bitcoin, the Real Estate Council of BC said they don鈥檛 have statistics as they don鈥檛 monitor sales.
When asked the same question, Brendon Ogmundson, an economist at the British Columbia Real Estate Association (BCREA), said they track sales through MLS which means the properties are sold by realtors. With the realtors not being allowed to accept their commission through Bitcoin, Ogmundson said those sales wouldn鈥檛 be coming through a realtor, so they would have no way of tracking the stats.
鈥淚鈥檓 guessing that the number of transactions that have actually been done through bitcoin are vanishingly small,鈥� said Ogmundson.
A call to the Office of the Superintendent of Real Estate turned up no stats or tracking either. They referred us back to the Real Estate Council of BC.
鈥淚t is still pretty new,鈥� said Donais. 鈥淚t hasn鈥檛 evolved yet to make it mainstream. I think we will see this all the time going forward but I think we are a couple years early right now.鈥�
Donais has a realtor so is planning on requiring the buyer to pay the deposit in cash. He would pay his realtor鈥檚 commission out of that cash and collect the remainder in Bitcoin.
While all the logistics of using Bitcoin to buy a house are still being smoothed out, the Canadian Revenue Agency (CRA) is responding to the changes.
鈥淚n an increasingly interconnected world, the Canada Revenue Agency (CRA) is committed to adapting its administration to keep pace with evolving global services and products,鈥� said a representative for CRA.
When asked if it is legal to sell your house for Bitcoin, Patrick Samson, media relations for Canadian Revenue Agency said, 鈥淭echnically, you can sell your house for anything you want. You can sell it for three cows. You can sell it for a TV.鈥� But the CRA wants sellers to know that when using Bitcoin, tax rules apply. Sellers accepting Bitcoin are still required to declare capital gains from the sale of a house.
Another layer of complexity in accepting Bitcoin as payment for real estate, is the volatile nature of the digital currency. The amount of bitcoin one would receive for their property is dependant on the market value of bitcoin on the day of closing. With the swings in the currency鈥檚 value, that could mean a fluctuation of thousands of dollars on a multi-million dollar property.
鈥淚t鈥檚 just like trading stocks with a lot more volatility. It鈥檚 24/7. It never sleeps. It鈥檚 volatile but I think I can mitigate some of those risks by having a good understanding of the market,鈥� said Donais.
While using cryptocurrency to buy a house is new territory in B.C., bitcoin is no longer a fringe activity. During yesterday鈥檚 (Jan.10) 24-hour period, Donais said there was over $17 billion dollars (US) of trading volume for bitcoin alone.
The Canadian government doesn鈥檛 recognize Bitcoin as an official currency, but it is legal to use. It can be traded online using exchanges such as QuadrigaCX or Coinsquare . There are also a few Bitcoin ATMs around Victoria.
If using Bitcoin in the sale of a house or property, seek professional tax and legal advice.
鈥�
Additonal information from Canadian Revenue Agency:
The CRA鈥檚 general views on digital currency can be found here.
Digital currency can be bought or sold like a commodity. Any resulting gains or losses could be taxable income or capital for the taxpayer. When digital currency is used to pay for goods or services, the rules for barter transactions apply.
Additional information on cryptocurrencies, including information explaining that digital currencies such as Bitcoin are not legal tender in Canada, can be found here.
Additional information on capital gains regarding real estate can be found here.
keri.coles@oakbaynews.com
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