Getting paid in bitcoin: What you need to know

Adam Charbonneau, owner of AJ’s Plumbing & Heating in the northern Ontario town of Iroquois Falls, has been allowing clients to pay him with bitcoin since May 2021. “I have a strong feeling crypto will take over our finance system as we know it,” he says. “And it’s another option for payment for my customers. It’s fast and secure. I personally prefer that to getting a cheque.”

Charbonneau also likes that bitcoin transactions can be much larger than e-transfers from banks, whose limits range from $3,000 to $5,000 in a 24-hour period.

He accepts bitcoin for his labour but not for parts and appliances like furnaces and water heaters. “My suppliers don’t accept bitcoin,” he says. “If they accepted [it], I would transact in bitcoin. It would be easier to do it that way.”

Charbonneau advertises the payment policy on his Facebook business page. Since last spring, he has only been paid in bitcoin three times, for a total of about $3,000, but the low uptake doesn’t faze him. He expected that customers’ use of bitcoin would start slowly.

At the moment, Charbonneau is putting his cryptocurrency into a long-term trust fund, rather than cashing it out, putting that money into his business or paying his own salary with it. Bitcoin’s dramatic price fluctuations are “stressful” for short-term investment and its value is too unstable, he says.

“Now isn’t the time to switch salaries into bitcoin,” says Charbonneau, who has three full-time employees. “In my opinion, [bitcoin will] head down in the next two years. I’m anticipating in April 2024 we’ll have a new rise, and we’ll be a lot higher than we are now. … My long-term goal is to purchase our own shop with earnings we get from bitcoin. We’ve been renting a shop for the last five years.”

Pros and cons of getting paid with cryptocurrency

If you’re offered payment in bitcoin, you’ll want to learn about the pros and cons, says Michael Wong, a principal of research, guidance and support at Chartered Professional Accountants of Canada.

The pros: bitcoin payments are fast and secure, transaction fees are low and getting paid in bitcoin may be appealing if you want to invest in crypto anyway or diversify your portfolio.

As for cons, the biggest is bitcoin’s high volatility. Imagine getting paid one bitcoin for a renovation job, says Wong, only to see its value drop by 30% overnight—which happened on May 19, 2021. (See what can affect bitcoin’s price.) Are you prepared to weather that risk?

Another drawback: widespread bitcoin acceptance among Canadian companies is still a long way off. Just 8% of small businesses in Canada planned to accept crypto in 2022, according to a Visa survey released in January—so your options for spending it are fairly limited.

Which companies currently accept crypto in Canada? Finding them takes a bit of digging, and they’re hugely varied—ranging from larger firms like jewellery retailer Birks and tech vendor Newegg.ca to small businesses like Uncle Mike’s All Natural Products and Funky Moose Records.

What’s more pertinent, though, is what you can’t pay for with crypto directly, including household bills, mortgage payments and groceries—not yet, at least. So, if you need the money, you’ll have to cash out your coins at whatever the going rate happens to be at the time.

How to get paid in bitcoin

If, after all these considerations, you decide to get paid in bitcoin, how would you go about it, and what are the risks?

Crypto wallets

The first thing you’ll need is a crypto wallet to receive payments. If your employer is working with a cryptocurrency platform, the platform will likely host a wallet for you.

If you’re self-employed and have decided to accept payment in crypto, you can open a wallet on a crypto platform yourself—when choosing one, be sure to compare features like security, fees and customer support. And, when receiving payments, it’s a good idea to use a cryptocurrency payment processor such as Bitpay, says Wong. “You reduce a number of risks including lengthy confirmation times and the security of your cryptocurrency wallet, because the processor will automatically convert the payment into fiat for you at the market rate at the time of the transaction.”

If you want to hold on to bitcoin instead of converting it to fiat currency, Wong recommends you store it in a cold wallet (a hardware wallet that’s disconnected from the internet) rather than a hot wallet (a digital wallet that’s always online). “Cold wallets are more secure against online attacks, which are the most common attack vector,” he says. “Cold wallets carry their own risks like risk of physical theft, forgotten encryption key, etc., but [this] can be mitigated through other methods.”

Whatever type of wallet you use, it’s up to you to safeguard your passwords. (Read more about crypto wallets and crypto risks.)

Deductions

What about income tax, CPP and EI deductions? If you’re a salaried worker, your employer will likely calculate your pay and remit deductions to the Canada Revenue Agency (CRA) in Canadian dollars first, then pay out the percentage you’ve opted to receive in crypto, exchanged at the current crypto exchange rate.

That’s how it’s done at Coincards, a Vancouver-based cryptocurrency gift card company that’s been offering payment in bitcoin for about five years. Uptake has been high, says CEO Mike Olthoff—about 50% of his employees, independent contractors and service providers have opted in.

And if you’re self-employed, you’ll need to handle the deductions yourself at tax time, perhaps with the help of an accountant who’s familiar with crypto.

How to claim bitcoin income on your tax return

Speaking of tax time—the tax situation around cryptocurrency is complex, says Wong, citing a Canada Revenue Agency guide. The CRA regards cryptocurrency as a commodity under the Income Tax Act. Any income from crypto transactions, such as payments for goods or services, is treated as either business income or capital gains. (Read more about crypto and taxes.)

Anyone paying or getting paid in cryptocurrency should keep detailed records of all transactions. The CRA advises that the records should include transaction dates, receipts of transfers, value of the currency in Canadian dollars at the time of transactions, digital wallet records and cryptocurrency addresses, and accounting and legal costs.

Holding bitcoin for the long term

Before you elect to get paid in bitcoin, consider what you’re going to do with it. Are you going to cash it out or HODL (crypto lingo for “hold on for dear life”)?

In February, Unified MMA, a mixed martial arts promoter in Edmonton, started offering fight purses in bitcoin, in partnership with Bitcoin Well, a bitcoin ATM company. Sunny Sareen, president of Unified MMA, says it’s up to the fighters to do their own research about cryptocurrency prices. “It’s a risk. Nothing in life is guaranteed,” he says. “They have to believe in the product to be paid in bitcoin.”

Adam O’Brien, founder and CEO of Bitcoin Well, stresses the importance of holding bitcoin for the long term, which he defines as five years or more. “Bitcoin is a riskier place for short-term value. But there’s no safer place long-term—like five, 10, 20 years out—than bitcoin,” he says. The number of bitcoins is capped at 21 million, and the currency’s scarcity ensures it will continue to hold value, O’Brien adds.

Despite the uncertainty, at least one athlete has accepted Unified’s offer. Welterweight fighter Shane Campbell received a portion of his purse in bitcoin after winning a bout in March. In a Bitcoin Well news release, Campbell said, “As the world begins to diversify, I’m looking forward to getting paid in different ways.”

Read more about crypto:

• Best cryptocurrencies to invest in for 2022
• Who’s buying crypto and why?
• Watch: 10 cryptocurrencies you need to know about
• What is crypto staking?
• How to invest more sustainably in crypto