Bitcoin and other cryptocurrencies are slowly taking over the investment market. Many new investors are showing interest in cryptocurrencies because of the high risk, high reward structure. However, if you’re new to the crypto space, you may find yourself wondering whether bitcoin is legal, if yes, how you can use it and if there are any legal steps you need to take.
In this article, we’ll tell you everything you need to know about the legality of bitcoin and other cryptocurrencies in Canada.
Using Digital Currencies in Canada
Canada takes pride in itself for being one of the first countries to realize the true value of cryptocurrencies. As a result, the Canadian government made use of all the cryptocurrencies legal in the country. However, their legal status is different from that of the official currency, i.e., the Canadian Dollar.
You can use and buy cryptocurrencies in Canada without worrying about any legal issues.
Are Cryptocurrencies Legal Tender?
Even though cryptocurrencies are legal in Canada, they are not legal tender. However, according to the Bank of Canadian website, “Banknotes issued by the Bank of Canada, together with coins issued by the Royal Canadian Mint, are what is known as “legal tender”.
Since the Bank of Canada does not issue cryptocurrencies, you cannot consider them as legal tender. Instead, the Canadian Revenue Agency or the CRA declared cryptocurrencies as commodities. As a result, you have to pay the commodity tax on all cryptocurrencies you own.
That said, a service or a good provider can choose to accept cryptocurrencies as the payment method. The revenue agency will consider these transactions as Barter transactions for ease of taxation. According to the Canadian government website, “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.”
Trading Bitcoin and other Crypto in Canada
As we mentioned, trading bitcoin and other cryptos in Canada is entirely legal as long as you pay the necessary taxes for the transactions. There are multiple ways in which you can trade crypto in Canada. Let us see some of the most popular methods.
1. Crypto Exchanges
Using crypto exchanges is the easiest way to trade cryptocurrencies in Canada. There are several crypto exchanges like Bitbuy, Binance, Kraken, Coinbase, and many more that you can use to trade crypto tokens.
Crypto exchanges also offer direct buying and selling services in Canada. You can directly buy some crypto on most exchanges using a card or bank transfer.
2. Crypto ETFs
ETFs are an alternate way to purchase cryptocurrencies in Canada. Instead of registering on a cryptocurrency exchange, you can buy the ETFs on regular stock trading platforms. However, so far, only one bitcoin ETF and four-five Ethereum ETFs are available to purchase.
3. Peer-to-Peer Exchanges
P2P exchanges are a tad on the risky side of cryptocurrencies. This is because you exchange your crypto with a buyer or seller via the agreed-upon payment method in these networks. Therefore, ensure using only standard P2P exchanges to avoid getting scammed.
What to be Aware of When Buying Crypto in Canada
Whenever you trade cryptocurrencies, you will have to pay some fees for the transaction to complete. This fee will be used as a reward for miners in a Proof of Work algorithm and stakers in a Proof of Stake algorithm.
It can benefit you to check multiple trading methods to identify the one with the least fees. If you choose an option with a lot of fees, you may lose many profits to pay the fee itself.
Since the Canadian government recognized cryptocurrencies as commodities, you have to pay the commodity tax on every crypto purchase. However, the taxation part is where it gets tricky. Cryptocurrency gains are taxed as either capital gains or business gains, depending on the scenario.
If you’re trading in large amounts regularly, you may have to report the gains as business gains and pay the tax on 100% of the gains. However, if you’re trading and making profits personally, you may report the gains as capital gains and only pay tax on 50% of the gains.
Cryptocurrency scams are not unheard of in the blockchain space in Canada. Even though most exchanges and trading platforms are legal, always ensure that everything checks out about the platform before putting your money in.
You may also come across many pump and dump coins and scam coins that are created solely to make profits for their owners. Always research a coin thoroughly before investing in it.