One of the areas often overlooked when it comes to cryptocurrency is taxes. Many people don’t view digital assets as “real,” so they forget that the CRA (Canada Revenue Agency) expects people to pay taxes on their crypto.
However, you’ll pay either income tax or capital gains based on your investment. Don’t worry though, our guide to crypto taxes in Canada will set you on the right track.
We’re going to explain to you the differences between crypto income tax and crypto gains tax. We’ll also tell you all about how crypto is taxed in Canada, as well as how you can pay less taxes on your cryptocurrency.
Our guide to crypto taxes in Canada will break everything down and explain exactly what you need to know.
Keep reading below to learn all the ins and outs of paying taxes on your cryptocurrency in Canada.
Note that crypto tax rules and regulations are constantly changing, so when in doubt always consult a tax professional who is up to date on these issues
Does Canada Tax Crypto?
This is the first question we want to ask, right? Do I have to pay taxes on my cryptocurrency? Unfortunately, yes, you do. Any crypto profits you realize are taxable.
However, in Canada, crypto isn’t viewed as a fiat. Instead, the CRA considers it a commodity, like owning a rental property or livestock.
It might be tempting to try to hide your crypto, but the CRA has the ability to track investments you make on digital assets.
The agency works with crypto platforms to gather information, which it uses to ensure you’re paying your fair share on any cryptocurrencies you’ve bought or sold.
As a matter of fact, transactions of more than $10k made on any money service in Canada notifies the CRA. As a result, it’s best to remain compliant with your crypto taxes and report them as accurately as possible.
What Crypto Isn’t Taxed in Canada?
We’ll jump into the different types of crypto taxes in a bit, but first, let’s look at some of the cryptocurrency transactions not taxes in Canada.
- Purchasing cryptocurrency using fiat currency (CAD)
- Sending crypto from one wallet to another
- Receiving crypto as a gift
- Holding crypto
How Does Canada Tax Crypto?
Since Canada considers cryptocurrency a commodity, it’s subject to either capital gains tax or income tax.
If your crypto is viewed as income, you’ll have to pay income tax on the entire transaction.
However, if it’s a capital gain, you’ll only pay taxes on half the profits you realize from the transaction. How do you determine if a transaction is considered a capital gain or income?
Let’s take a closer look.
Capital gain or Business income?
Whether a transaction is a capital gain or income is determined on a case-by-case basis by the CRA. However, the distinction between the two is not often clear.
Business Income
The CRA does offer some guidance by suggesting that the following are commonly found with a transaction that’s considered income:
- The intention of the transaction is to make a profit
- The transaction promotes a service or product
- Transactions are done for commercial purposes
- Transactions are repetitive and consistent
Examples of cryptocurrency businesses that the CRA will likely tax as business income:
Some examples of cryptocurrency businesses are:
- cryptocurrency exchanges
- cryptocurrency mining
- cryptocurrency trading
Capital Gains
On the other hand, since Canada considers crypto to be a capital asset, if you get rid of it by selling it, trading it, giving it to someone, or purchase a good or service with it, you’ll have to pay capital gains taxes on it.
Here are some transactions the CRA considers capital gains for cryptocurrency:
- Exchanging crypto for a different crypto
- Using crypto to purchase a good or service
- Selling cryptocurrency for fiat currency (CAD)
- Giving your crypto to someone else
Keep in mind that you’re not going to pay capital gains on all your earnings, just the amount that is considered profit. Plus, you’ll only pay tax on half your net capital gain when you pay taxes in Canada.
Tax Breaks for Crypto Investors
You’ll find that there are a few ways to get tax breaks in Canada if you decide to invest in cryptocurrency. Here are a few to keep in mind:
1. Personal tax allowance
There is a specific amount of income you earn in Canada that’s tax-free. This number changes every year, so be sure and pay attention to what the personal tax allowance is each time you pay taxes.
2. Spousal tax credit
If you or your spouse have an unused personal tax allowance, you can share it with your significant other. Note that you have to either be married or have a common-law partnership for this to be valid.
3. Half your crypto Capital gains are taxed
One last way you can save on your crypto taxes is that you’ll only pay taxes on half your crypto gains if it qualifies for that classification. It’s easy to determine how much you’ll pay. Add together your capital gains, then half of that will be taxable.
However, it’s important to remember that if you’re not sure about your crypto taxes or feel as though you need help with them, be sure to consult with a professional.
Paying Taxes When Selling Crypto
You’ll have to pay taxes if you sell your cryptocurrency in Canada. Your overall income will determine how much you’ll pay, but there are a few other things to consider when selling your crypto.
For starters, are you selling your crypto for fiat currency like CAD? If so, then it likely becomes a capital gain and you’ll pay taxes on it as such. That means you’ll only have to pay taxes on half your profit.
However, if the CRA deems that it was business income, for example, if you are a crypto trader, you’ll be taxed on the entire gain.
Along those same lines, if you sell your cryptocurrency for any other type of cryptocurrency, then the CRA considers it a capital gain, which means you’re once again subject to capital gains tax.
Taxes on Mining Crypto
The taxes you pay on mining cryptocurrency in Canada depends on your intentions. So, if you’re only mining as a hobby, then chances are good that you’re only going to have to pay capital gains taxes on any crypto you mine.
However, if your mining is a business, then you’ll likely pay income taxes on your crypto.
Taxes on Trading Crypto
Similar to the taxes you pay on mining crypto, the taxes you pay on trading crypto will depend on your behavior and intentions. If the CRA sees you as a private investor, then you’ll likely only pay capital gains taxes on your profits.
As a result, you’ll pay taxes when you close your positions, which is when you realize your losses or gains.
On the other hand, if you do trading at a large scale – say the same amount as a day trader – the CRA will likely classify the profits from your trades as income.
You won’t pay any taxes until you close your position, but once you do, you’re probably going to pay income taxes on all your profits.
Taxes on Crypto Staking
If you decide not to earn money through mining or trading crypto, there’s also the option to stake cryptocurrencies. This is typically done through coins that use Proof-of-Stake as their consensus mechanisms.
Of course, this is yet another way to make money through cryptocurrency, so there are taxes to pay. Since you’re earning more crypto through staking, the CRA views it as income, which is subject to income tax.
Taxes on Stolen or Lost Crypto
The CRA allows taxpayers to claim stolen or lost property as a capital loss. So, since it considers crypto a capital property, you can claim any lost or stolen cryptocurrency as a capital loss.
This is done in the same way that you would claim losses on lost or stolen business equipment.
Remember that Canada uses the adjusted cost basis (ACB) method. That means you’re only going to be able to claim the amount of the initial investment as the loss and not the current market value of the asset.
Taxes on NFTs
NFTs (Non-Fungible Tokens) are a new phenomenon in the crypto world. That means the CRA doesn’t have much guidance on how to pay taxes regarding NFTs, but that doesn’t mean you’ll get away with not paying them. For the most part, you can treat NFTs are you could any other good or service.
So, if you plan to create and sell your NFTs, you’ll get taxed on it just like you would any other good or service you provide. That means any money you can from minting and selling NFTs will be considered income, which is subject to income tax.
On the other hand, if you’re buying, selling, and trading NFTs, your profits are likely subject to capital gains tax. This is true for buying an NFT with crypto, selling an NFT for crypto, exchanging one NFT for another NFT, or giving an NFT to someone else.
Taxes When Spending Crypto
If you’re using your crypto to pay for a good or service, you’re using an asset, which means the transaction is subject to capital gains. You’ll have to determine how much capital gain tax you’ll pay by reducing your cost based on the market value of the asset on the day you used it.
Information Needed for Crypto Taxes
As you prepare to complete your taxes each year, you’ll have to provide your crypto records. However, keep in mind that the CRA is going to want detailed records of any and all transactions involving cryptocurrency.
Unfortunately, tracking your cryptocurrency transactions is not going to be as easy as getting your income information from your place of business.
As a result, it’s on you, the taxpayer to keep track or to pay close attention to what the exchange or crypto platform you’re using has on file.
You need to keep meticulous records of the following information in regards to cryptocurrency transactions:
- Crypto exchange and platform records
- Cryptocurrency wallet addresses
- Transaction dates
- Market value of the asset when the transaction occurred
- Proof of transaction
- Additional costs (e.g. accounting, legal, etc.)
The nice thing about many crypto exchanges is that they’ll track your transactions for you. Some will even import your information into tax accounting software so you don’t have to input them manually. This is really nice to have if you perform a lot of crypto transactions each year.
Paying Crypto Taxes in Canada
If you wind up owing on your crypt taxes in Canada, you’ll have to pay them by the deadline.
So if you know ahead of time that you’re going to owe, it might make sense to file early so you’ll have until the deadline to pay. Doing so ensures you can avoid getting stuck with a large, unexpected tax bill.
Avoid Paying Crypto Taxes in Canada
We’ve talked about all the ways you’ll probably have to pay taxes on your crypto in Canada, so let’s take a few moments and discuss some ways you can avoid doing so.
While you’re not going to be able to completely get around paying taxes, there are some methods you can use to reduce your bill.
Use a TSFA for ETFs
While you can’t use a Tax-Free Savings Account to store your cryptocurrency, you can use a Bitcoin Exchange Traded Fund to help offset your tax burden.
These ETFs are perfect for those that want to invest in crypto without actually owning the asset. ETFs offer all the benefits of owning Bitcoin without holding it.
As a result, you’re never actually holding the digital asset, so any profits you realize with an ETF in your TSFA are completely tax-free.
Registered Retirement Savings Plan (RRSP)
With a Registered Retirement Savings Plan, you can defer taxes earned on crypto investments such as ETFs.
You can purchase crypto ETFs using your RRSP, and while this doesn’t eliminate your taxes, it will defer them to a later date.
Use leftover losses
If you happen to have any losses leftover from the previous year, you can use them to offset the amount of taxes you owe.
Or, you can use your current losses and carry them into future years to help reduce your overall taxes if you expect to pay more in the years to come.
Conclusion
Taxes can be tricky if you don’t know what to expect, especially when it comes to cryptocurrency.
That’s why it’s important to know about crypto taxes in Canada. We built this guide to provide you with the information you need so you’re fully prepared when tax season hits.
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