The popularity of cryptocurrency investments has risen dramatically, but with it comes a crucial query: How will the taxman handle your digital gains? Cryptocurrency taxes in Canada are more complicated than you may imagine. Anyone navigating this quickly changing terrain has to grasp the tax ramifications, from capital gains tax on profits to the intricacies of crypto mining and staking.
Is Crypto Taxable in Canada?
Cryptocurrency is treated as property in Canada, and profits are subject to capital gains or business income taxes. Determining whether your cryptocurrency earnings will be treated as capital gains or business income is crucial since in Canada, 50% of capital gains are taxed while 100% of business income is taxable. This article addresses frequently asked issues regarding Canadian cryptocurrency taxes and describes how both groups are reported and taxed.
When Cryptocurrency Counts as Capital Gains?
When a person sells, trades, gives, or uses cryptocurrency and makes a profit, capital gains tax is applicable. The following essential factors need to be taken into account when calculating capital gains:
- Proceeds of Disposition: This is the sum obtained from the cryptocurrency transaction, such as when it is sold for fiat money or when it is used to pay for products or services.
- Adjusted Cost Base (ACB): The whole cost of purchasing the cryptocurrency, including the transaction fees, purchase price, and any additional costs directly linked to the acquisition, is known as the Adjusted Cost Base (ACB).
- Capital Gain (or Loss): The ACB is deducted from the disposal proceeds to calculate the capital gain. A good outcome indicates a capital gain and a negative result indicates a capital loss.
When Cryptocurrency Counts as Business Income?
Whether cryptocurrency is a capital gain or a business gain will determine how Canadians report it on their taxes. The following indicators are used by the CRA to classify cryptocurrency as business income:
- Regardless of the possibility of immediate financial gain, there is a desire to turn a profit.
- Activities are carried out “in a business-like manner” (e.g., purchasing inventory or capital assets or creating a business plan)
- A product or service is advertised.
- The activity is carried out for commercial purposes and in a financially viable manner.
According to the CRA, cryptocurrency operations include ATMs, trading, mining, and exchanges. Remember that enterprises that are just starting with cryptocurrencies might not be required to register them until the taxes for the next year. For the CRA to classify the actions as business revenue, they must often be repeated. However, occasionally a single transaction suffices. A tax accountant knowledgeable in cryptocurrency taxes in Canada should be consulted by anyone unsure if their cryptocurrency will be regarded as company revenue.
Tax-Free Crypto Transactions in Canada
The following cryptocurrency transactions don’t result in any taxable events in Canada:
- Getting cryptocurrency as a present.
- Simply purchasing and holding crypto with fiat.
- Created a Decentralized Autonomous Organization (DAO).
- Moving crypto between wallets you own.
Tips to Minimize Cryptocurrency Taxes in Canada
You may lower your crypto tax responsibilities in Canada in several ways. There are strategies you may employ to lower your crypto tax bill, even if there is no legal method to avoid paying taxes on your cryptocurrency.
- Tax-Free Savings Account: Money can be deposited into a tax-free savings account (TFSA) by any adult in Canada. Although you cannot directly own cryptocurrency in your TFSA, you may own exchange-traded funds (ETFs) that follow the value of cryptocurrencies like Ethereum and Bitcoin.
- Losses in Cryptocurrency: Losses from cryptocurrency might lower your tax obligation and offset capital gains.
- Transactions Fee: You can lower your total capital gains by adding transaction fees from cryptocurrency trading to your adjusted cost basis.
- Businesses Deduction: You will be allowed to deduct related costs if you are operating a cryptocurrency firm. For instance, the expenses of equipment and power can be deducted by a mining company.
Taxation on Crypto Buying/Selling in Canada
Cryptocurrency is taxed as a commodity in Canada and is regarded as capital gains or business revenue. Taxpayers in Canada are exempt from paying taxes on cryptocurrency purchases or holdings. They still have to pay business income taxes or capital gains taxes on the money they make from mining, selling, or other cryptocurrency-related activities. Given that 100% of company revenue and 50% of capital gains are taxed, it is crucial to determine if your activities are regarded as part of a business.
Since cryptocurrency is not accepted as legal money in Canada, paying for services or products with it is seen as bartering and has associated tax implications. As a result, Canadian taxpayers who receive services or goods in return for cryptocurrency may either experience a capital gain or a loss based on the change in value of the cryptocurrency since they purchased it.
Taxation Rates for Crypto In Canada
There are neither short-term nor long-term capital gains tax rates in Canada. Instead, Canadian cryptocurrency capital gains are subject to the same tax rates as both federal and provincial income taxes. The tax rates for cryptocurrency in Canada are listed below.
| Tax Rate | Income |
| 15% | On the first $55,867 |
| 20.5% | $55,867 – $111,733 |
| 26% | $111,733 – $173,205 |
| 29% | $173,205 – $246,752 |
| 33% | $246,752+ |
Crypto Tracking by CRA
Even though cryptocurrency provides some privacy, transactions may be tracked by the Canadian authorities. Cryptocurrency exchanges are required to notify the Canada Revenue Agency (CRA) of transactions above $10,000 to maintain compliance. Crypto exchanges within Canada are required to collect client information if your transactions fall below this level, and they may be asked to provide this information. To stay in compliance, it is important to assume that the CRA has complete knowledge of your cryptocurrency activities and to disclose all of your transactions in detail.
The CRA oversees national taxation in Canada and administers tax regulations for the federal government, the majority of provinces, and territories. Any money received from cryptocurrency transactions is sometimes categorized as either company income or capital gains, depending on the circumstances. Similarly, if earnings are classified as capital gains or business income, then losses are classified as capital losses or business losses.
Reporting and Filing of Crypto Taxes
You must fill out form T-2125, Statement of Business or Professional Activities if you have decided that your cryptocurrency profits qualify as business revenue. If you’re operating a cryptocurrency company, you should be able to deduct several business expenditures, including memberships, subscriptions, your internet connection, and costs associated with your home office.
A non-capital loss can be subtracted from any other form of income you received that year, such as profits from investments or employment, to reduce your taxes if your company revenue from cryptocurrency (after costs) is negative. Non-capital losses can be carried forward for up to 20 years to lower your future taxable income, or they can be carried back for as long as three years and used to prior years’ tax returns if your total income is insufficient to qualify for the loss deduction.
Record Keeping of Crypto Taxes in Canada
You must maintain sufficient records and books to back up every transaction if you have purchased or sold crypto assets. This is true for both people and companies.
The following details should be documented for your transactions using crypto-assets:
- An explanation of each transaction’s type and the other party (even if it’s only their crypto-asset address)
- The addresses associated with each digital wallet utilized
- The quantity and kind of cryptocurrency assets involved in each transaction
- The cryptocurrency’s value (in Canadian dollars) at the point of each transaction
- The exact time and date of each transaction
- The starting and ending wallet balances for each cryptocurrency asset each year, including its cost
How Clearwealth Can Help You?
It may seem difficult to navigate the tax ramifications of investing in cryptocurrencies in Canada, but with the correct information, you can make sure your digital assets are appropriately reported and maintained. Making wise investment decisions requires knowing how your trading, mining, and holding actions affect your tax responsibilities.
Don’t try to figure out this complicated area by yourself if you’re not sure how digital currency taxes affect your investments. For professional advice on optimizing your cryptocurrency strategy while maintaining tax efficiency
