Buying a House with Bitcoin in Canada

We’ve all seen the headlines across the globe proclaiming the rise of cryptocurrency, and the pandemic has accelerated that growth, with many coins reaching all-time highs. Even mainstream investors are getting into the cryptocurrency game, adding bitcoin and other cryptos to their portfolios.

With more people invested in bitcoin, some real estate agents are hearing questions from their clients related to buying a house with bitcoin in Canada. It is an outside-the-box idea for many homebuyers, beyond the traditional banking and mortgage industries.

We will examine the possibility of buying a house in Canada with bitcoin, but first, a little introduction to the world’s most popular cryptocurrency.

What is Bitcoin?

Bitcoin is a digital currency created in January 2009. Unlike the Canadian dollar, a government-issued currency, bitcoin is decentralized.

Like all cryptocurrencies, when you own bitcoin, you do not own a physical bitcoin, but instead, you own a balance on a public ledger known as the blockchain.

As of March 06, 2022, bitcoin represented 35 per cent of the entire crypto market, making it the most prominent cryptocurrency in the world.

It was the earliest cryptocurrency to find widespread popularity, often making it synonymous with the cryptocurrency industry as a whole.

Even though it is not legal tender, bitcoin can be accepted as a means of payment. But, what about buying a house with bitcoin in Canada?

Understand the Risks of Buying a House with Crypto

A gentle reminder, before we get more into purchasing a home with bitcoin: this is not financial or tax advice. If you are considering buying a home with crypto, you should discuss it with your lawyer and a financial professional to make an informed decision. This is a new economic and legal territory, and should be navigated carefully.

Can you Buy a House in Canada with Bitcoin?

Yes, you can buy a house with bitcoin since there’s currently no law against using it to purchase property in Canada. However, that is not the whole story. As an emerging technology and means of exchange, it is not as straightforward as getting a mortgage from a bank.

Regulatory bodies like the Real Estate Council of Ontario (RECO) are currently examining the possibilities of using cryptocurrencies in real estate transactions. RECO’s regulatory powers extend to salespeople, brokers and brokerages, but not homebuyers and sellers. They cannot restrict how they choose to buy or sell a property. But, using Canadian currency is by far the easiest way.

If you look at a standard purchase agreement, like this one from the Ontario Real Estate Association, you will see that the default currency of the purchase price is Canadian dollars. This process is the standard way to buy homes across Canada. If you want to purchase a home with bitcoin, you will need a custom and precisely drafted Agreement of Purchase and Sale.

Your Options for Buying a House with Bitcoin

Selling Your Bitcoin for Canadian Dollars

The easiest option to purchase a home with bitcoin is to sell the bitcoin you have and convert it into Canadian dollars. Because you are selling it, Canada Revenue Agency sees this as a disposition of cryptocurrency. The income you make from selling bitcoin may be considered business income or a capital gain. Consult a financial/tax professional to fully understand the tax implications of trading bitcoin.

Selling bitcoin and using cash to purchase the home is the easiest method because of the accepted process of using Canadian dollars and the tax implications. Bitcoin in both transactions is taxed the same by the CRA. Since you are transferring the bitcoin, it is also considered disposition.

Purchase a Home Directly with Bitcoin

The more challenging option is to purchase the home with bitcoin directly. If the seller is a member of the cryptocurrency community, they may not think twice about accepting bitcoin as a form of payment. In 2018, an insurance broker in Mississauga listed his condo in Bitcoin, so involving crypto in the purchase process is not unprecedented.

To understand the challenge of purchasing with bitcoin, you must understand trusts. Typically, when buying a home, you pay funds to your lawyer. Your lawyer is required to hold those funds in a special trust account. Digital currencies currently cannot be held in trust accounts, making transactions involving bitcoin riskier.

The buyer and seller would have to negotiate for a third party to hold funds to make the transaction possible. That poses a risk. With your lawyer, the funds in the trust account are protected should the deal collapse. There are financial and legal implications of going outside the traditional path. Talk to both a legal and financial professional to help you navigate this method.

Cryptocurrency is also highly volatile. Its exact value can swing drastically in minutes. To address the issue, ensure the lawyer writes a clause specifying on what date the value of the bitcoin is determined.

If you do not have enough bitcoin to cover the home’s purchase price, you can sell enough to cover the down payment cost, then take a mortgage on the rest of the money owing using Canadian dollars.

Why Would I Use Bitcoin to Pay for a House?

There are numerous reasons someone might choose to use bitcoin to purchase a house. Whether a primary residence, a vacation property or a rental property, buying a home has historically been a good investment. By buying into the real estate market, you are moving from a volatile crypto market to a more stable real estate market while diversifying your portfolio.

Making an Informed Decision

Bitcoin is highly volatile. Just days after a sale using bitcoin, the prices could surge up or down. It is essential to do our due diligence and be fully informed. On top of working with a real estate agent, talk to a financial professional to guide you through the transaction and the tax implications.