Question about capital gains tax and loans

Quick question about capital gains tax related to loans. So, I heard that if you're dealing with BTC loans, there’s no tax on them. But what if I lend some BTC to a buddy, and he pays me back in cash or through a wire transfer into my bank account? If I’m planning to return the loan in a few years, is that still a non-taxable scenario? Also, what if he just decides to write off the loan entirely? Does that change the tax situation?

If you loaned BTC to your friend and they pay you back the loan in cash or in any other means, other than BTC itself, then you'd incur capital gains tax. Because such action would be considered as a disposal of your asset, so you would have to pay your tax on the profit. However, if you loaned BTC to a friend, to receive the said BTC later, i am not sure that can be subject to capital gains tax. Though tax laws differ based on jurisdiction, so this will still be dependent on your region.

First of all, you need to mention your jurisdiction right away, the laws are different everywhere. Second, unless your friend is an entity that's accredited to commit such financial operations, it wouldn't work. But again, depends on jurisdiction.

Unless your country does not consider Bitcoin transactions to be taxable, I am going to assume the same law used for Fiat will apply to Bitcoin transactions as well. Generally.  I do not think a loan is a taxable event unless any of you two make profit as in earn interest off it.  If you give them 500 Dollars and they have to hand it back to you, it would make no sense if any of you two had to pay a tax for it.  If you had to pay back 520 Dollars however, this should be taxable for them as they earn 20 Dollars interest.  But law may be different around the World. So.  Ask a lawyer or someone specialized in this part of the law.  I am assuming you are not talking about hundreds but at least thousands of Dollars.  So it is worth the probably couple tens of Dollars spent on finding the real answer for the law of your country.  My strong recommendation is that you do not take legal advice from a Forum.  This is how you can get very easily screwed for the comfort of not having to pay the small cost of finding the legitimate answer.

It actually depends on where you live how about the taxation of BTC loans paid by cash, each region will have different regulations. However, I think that if you lend to an entity or bank that is supervised by the government, it will usually be taxed, but if you lend to a friend again, the tax will be exempted because it is not bound by a contract or some kind of signing letter. It could be that my thinking does not make sense to rely on because of different views or rules, so let's be clear you ask a tax consultant about this rule.

Your loan structure needs to be further analyzed; typically, the collateral value is greater than the loan amount. However, it may be temporarily non-taxable, assuming your authorities exempt it from tax, provided it's a genuine loan, documented, and with a noted fixed term. You just need to be wary of fake loan schemes, even if you have no intention of tax evasion.

Surely if you let your friend a loan in bitcoin, and years later you get money back in stablecoin or fiat currency, with loan interest part, you will have to report it in capital gain and it will be taxed. If you receive your money back in bitcoin, there are two cases. The first case is receiving the same bitcoin amount back, that means 0% loan interest, there will be no capital gain tax. The second case is receiven an amount of bitcoin that has initial loan amount + loan interest amount, there will be capital gain tax and you must report it to tax authority.

That's not really a BTC loan. You transferred BTC and got cash, which most tax authorities will treat as a disposal, taxable at BTC's value on the day. A real bitcoin loan is when BTC stays as collateral and you get the BTC back; here it sounds like ownership actually changed hands. On forgiveness: in most jurisdictions that's cancellation-of-debt income and taxable, unless it qualifies as a gift. Either way, get it in writing and talk to a local accountant before the repayment date. There is no absolute answer, it depends on your jurisdiction.

Lets say Canada  Scene1: i lent BTC to friend  100k value about 1btc i get fiat in my bank wire transfer maybe. 100k (he pays me back the BTC) down the road to anonymous wallet. (years later) i give him his 100k cash per say (no paper trails) is this taxable? Scene2: now we enlarge this scale to 1M, btc lent to friend received fiat by bank wire years later he sends me btc back whatever he does with it not my concern maybe gambling or investing he decides we're good ill wipe off the loan... is this taxable? very grey area here

To be safe, it's just best to treat such a loan as a real financial agreement because selling the Bitcoin is sure to trigger capital gains tax based on the original cost of the sold Bitcoin. To avoid triggering the capital gains tax means the Bitcoin just has to be held in a wallet and not sold or swapped for profit. Therefore, capital gains tax is quite dependent on who is receiving the cash and the terms of agreement, otherwise such a loan with Bitcoin held as collateral is non taxable by law.

That doesn't mean it's safe. As others have said, you must be able to prove to the tax authorities with complete documents that it is not an attempt at disguised asset disposal. The larger the loan value, the closer it is to the more serious radar. Maybe you will not only be dealing with tax authorities, but also AML compliance.

Non taxable event is when you borrow cash and use your BTC as a collateral, you used the cash, your BTC still locked as a collateral, only then it can be considered non taxable event. If you think what you doing is very grey area, maybe you shouldn't do it.

Not a grey area! You have no paper on the loan so the $100k you receive is treated as income! You are purposely hiding the other two transfers, after that would actually make it look like a real loan with collateral, so you're digging your own hole deeper. The CRA will treat it as a disposition and you're going to get taxed accordingly.

No paper trail, no "income". Obviously you are not reading this right. He can't just come to the agency and say hello I have $100k here without any trail, it comes from a loan/income for whatever. No trail, no report. So who is going to treat it as income?   No, it is not. Your return must be in the original, therefore as long as he gives you back the BTC you are good -- then it is a collateral based loan that works the same way that it does when you deal with established companies that offer these kinds of loans such as Strike. But why do you care if it is taxable or not if there are no trails of any kind? You won't be able to legalize this cash without doing something illegal, i.e., forging a story about where it came from. If you are not going to report it, then you do not need to worry about whether it is taxable or not -- you will be committing tax fraud, but it would be pointless to worry. If you are going to report it, then you do need a paper trail for the cash. You can't just come up with a story hey I got this cash from a loan with no paper trail of any sort, in this style "tis not income, pls now deposit into the bank trust me I am very honest person no criminal".   This is not a grey area and there are no important matters of justification as some people yap about that like NPCs. Accounting standards and most of these things work quite similarly, differences are minor and irrelevant for most questions that are posed here. If a debt has been "wiped off", then this cancelled debt will be treated as taxable income to the borrower. In most cases whether it is income and taxable can be answered simply by asking "are you richer from this"? Simple 2 cases: Taking out a loan does not make you richer as you need to repay it, therefore not taxable.The loan you took was forgiven? You are now richer by amount of the loan, even if it was already spent. Anyway @Kpoph101, asking ChatGPT will give you better answer than 99% or 99.9% of the user answers of this forum depending on the question. You might as well do that.

I would do this one of two ways.  Full paper trail or zero paper trail. Imagine this.  You sent your friend 1 Bitcoin.  No Bank knows your identity sent to your friend some Bitcoin.  But then the friend sends you 100 thousand Dollars through Bank transfer.  Now the Bank knows ONLY that your friend sent you 100 thousand Dollars. If he pays you back the Bitcoin anonymously and you give him the 100 thousand Dollars back in Cash, the only thing your Bank and maybe your financial authorities will know is that you received 100 thousand Dollars.  I do not know how things are in Canada but in Europe if you do this large transaction with no reason it is first of all seen suspicious and automatically flagged for Anti Money Laundering and second of all it must have a serious reason behind because no one spends that much with no reason. If they ever ask you any detail about your transaction years down the line and you start by telling them how you sent them Bitcoin and they paid you back anonymously and about the 100 thousand Dollars Cash transaction et cetera, I imagine a lot of Banks would flag your transaction for possible Money Laundering.  Unnecessary trouble. Do this with a proper loan where all the trail can be clearly seen and proved.  Or do this with no trail and no one will know any thing except you, your friend and some curious eyes analyzing the Blockchain.  Having only a fourth provable, I would not advise you to go ahead with it.