This post is for informational purposes only and is not meant as tax advice. For tax advice, please speak with a tax professional or accountant. Please review our full disclaimer below this guide.
It's the time of the year that everyone looks forward to – It's officially tax season in Canada! Bitbuy receives numerous inquiries on how gains or losses from cryptocurrency are taxed. Therefore, we've released our revised 2024 tax guide to assist you.
Please note that this article does NOT constitute official tax advice. It has been designed solely for informational purposes and should not be utilized as a basis for personal tax, legal, or accounting decisions. It is highly recommended that you seek counsel from a professional tax advisor to address your unique tax situation.
Yes, there are tax implications that you need to consider when you participate in ANY of the following taxable cryptocurrency transactions:
Digital currencies, including cryptocurrencies, are subject to the Income Tax Act. Consequently, users engaging in transactions involving Bitcoin (BTC), Ethereum (ETH), or other alt-coins are not exempt from fulfilling their tax responsibilities in Canada.
Contrary to what the name might imply, cryptocurrency is not acknowledged as "currency" under Canadian law. The Canada Revenue Agency (CRA) categorizes Bitcoin and other digital assets as a commodity equivalent to an investment property such as a stock ownership for tax implications. Therefore, any profit or loss resulting from someone's cryptocurrency investments are taxed in a similar fashion to any other commodity investment in Canada. Depending on the specifics of your situation, the revenue earned from the disposal of cryptocurrency might be classified as business income or a capital gain and must therefore be reported as either property income or business capital.
Whether your digital currency operations can be classified as business income or capital gains significantly impacts the tax you are liable for.
If you're an average investor who buys cryptocurrency and holds onto it, rather than selling cryptocurrency to carry on a business, here's what this means for you:
If your trading activities are classified as income, all profits or gains will be taxed as business income. Conversely, capital gains are taxed on half of those profits or gains. Being classified as capital gains would be beneficial for everyone, but the CRA considers several factors to distinguish whether digital currency profits are the result of "work" (income) or investments (capital gains).
However, depending on the nature of your cryptocurrency activities, for instance, if you seem to function as a day trader, the CRA might view your transactions as a business, with profits taxed as business income rather than a capital gain.
When it comes to establishing if you are operating in a personal or business manner, both the legal system and the CRA consider various factors, such as:
Furthermore, the CRA has identified the following common signs that you may be conducting a business:
However, every scenario requires individual evaluation. Even though business operations usually encompass some consistency or recurring action over time, a single purchase of cryptocurrency might be categorized as business income if there's an intent to sell for profit. This could be viewed as a venture or an undertaking in the realm of trade.
Yes, you can! If you sell your cryptocurrency and end up losing money (you sold it for less than what you bought it for), this is a "capital loss". You can use this loss to reduce the amount of tax you have to pay on other profits (capital gains) you've made from selling cryptocurrency or other assets.
If you don't have any other capital gains that year, you can save this loss and use it to reduce your taxes on capital gains you might make in the next three years.
Although cryptocurrency isn't recognized as official currency, the CRA understands that people utilize it for purchasing goods and services. Viewing cryptocurrency as a commodity implies that such transactions are categorized as bartering transactions.
A barter transaction occurs when any two persons agree to exchange goods or services and carry out that exchange without using legal tender.
Unsurprisingly, the CRA asserts that these types of barter exchanges are governed by the Income Tax Act. Consequently, accepting cryptocurrency as payment doesn't exempt merchants from recognizing income from a sale. The CRA has emphasized that the worth of any goods or services acquired through cryptocurrency should be incorporated into the merchant’s taxable income. Furthermore, GST/HST registrants also have an obligation to collect and remit Goods and Services Tax (GST).
While the responsibility for tax payment rests with the buyer, typically, the duty to amass and remit it is shouldered by the merchant or vendor. When a GST/HST registered entity accepts cryptocurrency in exchange for a taxable product or service, the GST/HST is determined using the fair market value of the consideration obtained for the product or service.
For instance, consider a shoe store in Toronto that takes Bitcoin as a payment method. The shoe store is required to establish the fair market value of both the digital currency and the product traded in Canadian dollars at the transaction's moment. Consequently, the worth of the shoes purchased utilizing cryptocurrency needs to be incorporated into the store's GST/HST report as revenue in Canadian dollars, complete with the corresponding GST/HST amount. Similarly, as previously mentioned, individuals who trade cryptocurrency for products or goods have an obligation to declare earnings or a capital gain/loss upon the sale of their digital asset.
Should you choose to receive cryptocurrency for goods or services or utilize cryptocurrency as a payment method for goods and services, it falls on your shoulders to guarantee compliance with relevant tax rules. Consequently, any taxpayer involved in such activities should implement a system for documenting transactions, including computations of fair market value, within their records to guard against potential inaccuracies.
The CRA recommends that anyone who acquires (by mining or otherwise) or disposes of cryptocurrency, should maintain the following records on such transactions:
Yes. Under Canadian law, NFTs are subject to taxation and the CRA will require their share when you sell or resell NFTs. The specific tax you're obligated to pay depends on whether you've personally crafted and sold NFTs or if you've acquired an already existing NFT in the marketplace that has appreciated since its purchase. As such, it's necessary for you to distinguish how you derive income from NFTs; either through profits from selling or exchanging the blockchain NFT itself or through royalties that could accrue from possessing copyright NFTs.
It's crucial to note that the barter regulations are also applicable to crypto-to-crypto transactions, encompassing primary coins like Bitcoin swapped for Ethereum, and even smaller digital currencies often referred to as alt-coins. Therefore, it's vital to be aware of the possibility of generating taxable events each time cryptocurrencies are exchanged, and not solely when converting to traditional currency. The value of the cryptocurrency obtained must be converted into Canadian dollars, and the subsequent gains or losses should be declared on your income tax return as either business revenue (or loss) or capital gain (or loss).
Cryptocurrencies that are located, stored or kept outside of Canada are equally under the purview of reporting regulations for Canadian tax purposes. Given that Canadians are taxed on their global income - not just their resources within Canada - you remain duty-bound to report any profit realization from trades, even if the cryptocurrency platform you utilize is based overseas. Therefore, Canadian taxpayers who hold cryptocurrency outside of Canada and have at any point surpassed a value of $100,000 CAD in a year, should be cognizant of their responsibility to file Form T1135 for property reporting.
In March 2019, Forbes highlighted an occurrence where a number of Canadian crypto users were subjected to audits by the CRA. As per a legal firm, a minimum of 60 taxpayers had been evaluated, and this figure is anticipated to significantly escalate as the CRA accumulates more data.
The CRA issued a guide in June 2019 clarifying the relevance of tax regulations to cryptocurrency. The government officially affirmed its dedication to guaranteeing that cryptocurrency is taxed in compliance with the law.
“Canadians should know that the Canada Revenue Agency is very active in pursuing cases of non-compliance, in order to make sure that the tax system is fair for everyone.” – Canadian Revenue Agency
The cryptocurrency investors who were audited in March were obliged to complete a comprehensive 13-page survey regarding their use of digital currencies. This was to ascertain if the taxpayer had accurately reported and paid the appropriate amount of income tax.
Under sections 231.1 to 231.4 of the Income Tax Act the CRA has broad powers to investigate and demand information from taxpayers. While these powers are not unlimited, the conduct of the U.S. Internal Revenue Service (IRS) might hint at what's in store for Canadian taxpayers. In November 2017, a successful court order filed by the IRS compelled Coinbase, a U.S. based cryptocurrency exchange, to disclose information about its users. The IRS initiated this appeal on grounds that Coinbase advertised serving 5.9 million customers with over $6 billion in transactions, yet only 800-900 taxpayers reported crypto-related gains between 2013 and 2015. Canadian tax authorities may similarly compel online exchanges to furnish user documentation if they suspect non-compliance with tax rules.
Commonly used forms for filing crypto taxes in Canada include Form T2125 and Schedule 3.
Business crypto transactions are subject to income tax and should be reported with Form T2125, but in most cases, Canadian taxpayers file their capital gains from crypto with a Schedule 3 - Capital Gains form.
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When cryptocurrency first appeared, it allowed people to make transactions with little regulation. However, as it has grown and become more influential in global finance, government agencies have started paying closer attention. Even though cryptocurrency was once seen as "anonymous," tax authorities are now keeping a close eye on it. This might mean less profit than in the early days, but it's actually a good thing in the long run. More oversight means more structure, openness, and trust in the world of cryptocurrency. In simple terms, you can't use cryptocurrency to hide your money from the taxman. It's best to follow the law. For more information on how cryptocurrency is regulated in Canada, take a look at this guide from the CRA.
Thanks to our reporting tool, Bitbuy users can create and download comprehensive annual activity reports for their Bitbuy accounts.
To access your reports, log in to Bitbuy, navigate to your profile drop-down on the top right, then click on “Documents”. You can then clicks on "Legacy Documents" where you will be able to download a CSV containing all your Bitbuy transactions in various formats for past years and months before May 2024.
You can either provide these reports to a tax professional or upload them yourself to a personal tax software. For more information on how to calculate gains and losses on commodities trades in Canada please refer to this article.
Keep in mind that these reports only capture your transactions linked to your Bitbuy account. If you have used other exchanges alongside Bitbuy or before switching to Bitbuy, you'll need to download similar reports from those platforms as well.
The CRA released its own guide for paying crypto related taxes, which can be found here.
DISCLAIMER: Bitbuy employees are not permitted to provide tax advice. Please consult with your tax professional or accountant for such matters. The information contained in this post is sourced from resources that are believed to be trustworthy. We give no warranty as to the accuracy or completeness of the information, nor is any warranty implied. The post is for informational purposes only and not meant to be relied upon by you. Use of any information contained in this post is entirely at your discretion. Bitbuy will not be responsible, nor can you hold Bitbuy liable for any actions taken or omissions in reliance of the information in the post.
