Cryptocurrencies are one of the hottest investment opportunities in Canada today. One myth about cryptocurrency is that there is no tax on crypto trades. However, it is not valid. Just like any other asset, you have to pay taxes for cryptocurrencies as well.
The overall taxing structure of cryptocurrencies is a tad bit different compared to other assets. In this article, we’ll take a look at the crypto trading taxes and some other helpful tips that’ll help you manage your digital assets better.
How Does Tax Work for Crypto in Canada?
Cryptocurrencies are not treated as a form of legal currency in Canada. While bitcoin, and the like, are legal, holding crypto is the same as holding any other commodity. The Canadian Revenue Agency announced that cryptocurrencies would be taxed as commodities.
If you’re using crypto to pay for products, the CRA will treat it as a barter transaction. The CRA does this so that it’ll be easier to tax the exchange. Barter transactions are when two parties make a transaction using something other than a legally recognized currency.
If you have more than one cryptocurrency in your wallet, you have to consider them separate digital assets. For instance, if you’re holding both an ether and a bitcoin, they should be treated as different assets and will therefore be taxed individually.
Is it Business Income or Capital Gains?
The income classification part is where the taxing gets trickier. Income on cryptocurrency can either be business income or capital income. The exact nature of the income will depend on the nature of the transaction itself.
Similarly, the losses are also treated as business or capital losses depending on the transaction itself. The difference between the both is that business income is 100% taxable, while capital income is just 50% taxable.
Crypto Trading and Taxes
There are multiple taxable events when using cryptocurrency.
- Selling or buying cryptocurrencies with fiat currencies such as CAD or USD.
- Trading cryptocurrencies for other crypto tokens. Example: trading Bitcoin for Ether.
- Using cryptocurrencies to buy goods or services.
- Selling cryptocurrencies or gifting them to someone.
In addition to these, the Canadian Revenue Agency also taxes cryptocurrency mining. Mining crypto is either taxed as a personal activity or a business activity.
Hobby mining is an example of personal activity. However, as the Canadian government website states,
“If a hobby is pursued in a sufficiently commercial and businesslike way, it can be considered a business activity and will be taxed as such.”
If you’re filing for tax returns, you’ll also have to find out whether to value the cryptocurrency as capital property or inventory property.
How Much do you Pay in Crypto Tax in Canada?
The exact amount of tax you need to pay varies from case to case. However, the general rule is that you have to pay the tax on 50% of the gains if they’re capital and 100% if they’re business.
Let’s say you invested a total of 3000 CAD. Now, if you sold the crypto for 6000 CAD, you’ll have to pay the tax for 50% of the gains, i.e., 1500 CAD. If you’re a business and trade in large amounts frequently, you may have to pay taxes for the entire net gains.
Canada’s Stance on Bitcoin and other Cryptocurrencies
Bitcoin and all the other altcoins are not considered legal tender in Canada. The CRA identified cryptocurrencies as commodities and not securities. The Canadian Tax Laws and Rules and everything in the Income Tax Act applies to cryptocurrencies.
Coming to the legality of crypto, Canada does consider all cryptocurrencies to be legal and usable. The Canadian government website states, “you can use digital currencies to buy goods and services on the Internet and in stores that accept digital currencies. You may also buy and sell digital currency on open exchanges, called digital currency or cryptocurrency exchanges.”
Tax Scam Warnings
One of the most important things you have to know when trading crypto is that your identity may not be completely anonymous. A lot of networks have been the subject of dusting attacks in the pa’s decade.
These attacks may lead to the attacker obtaining your email ID. If an attacker manages to decode your email address, you may get a mail or two regarding the tax you have to pay on the cryptocurrencies you’ve traded. Don’t click on any unknown links in the emails to pay your taxes.
Top Tax Tips for Crypto Investors in Canada
The Canadian government states that you keep a list of all your transactions to ensure smooth taxation.
The below tips will help make the process much simpler for you.
- Use a crypto exchange to keep track of your records automatically.
- If you are a crypto miner, keep the receipts for the purchase of the mining hardware.
- Note down the mining pool details.
- Ensure to note the value of the cryptocurrency in Canadian dollars at the time of the transaction.