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.
It’s that time of the year again.
Tax season!
Be afraid. Be very afraid. Or not.
As has been the case for years, there is still some confusion on how to pay taxes on cryptocurrency in Canada. Is crypto taxable in Canada? If so, what do you pay and how much? How do you pay taxes on your Bitcoin, Ethereum, or Dogecoin?
Cryptocurrency is designated a taxable commodity in Canada, and cryptocurrency holders are required to pay taxes on it.
We have put together a guide with some basic information regarding paying taxes on cryptocurrency in Canada.
First, cryptocurrency owners are required to keep track of all their crypto transactions and calculate their value in Canadian dollars when the transaction takes place.
All cryptocurrency-related income is required to be reported. This includes any profit derived from trading, mining, and staking. This income is to be reported as business income on the Canadian tax return or as capital gains, depending on the nature of the income. Cryptocurrency miners are also required to report all mining rewards as business income.
Cryptocurrency owners are required to pay taxes on all capital gains made from the sale of crypto assets. Fifty percent of the gain is considered taxable income.
Crypto traders must keep records of any expenses incurred when engaging in trading activities. This includes the cost of hardware, software, and other related costs.
In summary, what crypto activities are considered taxable anyway? Here is a list:
· Selling cryptocurrency for fiat currency.
· Trading cryptocurrency for cryptocurrency.
· Using cryptocurrency to buy goods or services.
· Gifting of cryptocurrency or making a sale.
· Other activities that result in the disposition of cryptocurrency
· Earnings from cryptocurrency mining and staking.
Meanwhile, it is important to determine whether the income derived from cryptocurrency is deemed business income or capital gain. Any activities performed for commercial reasons or that require business-level planning and are conducted to make a profit are classified as business activities.
For example, if cryptocurrency is bought with the intention of selling for profit, it will be considered business income. However, if capital gains are from personal activities, only half of the gain is subject to tax.
While there are many similarities between fiat currency and cryptocurrency tax regulations, specific differences should be kept in mind.
Here is a list for reference:
· Fiat transactions are typically valued in Canadian dollars, while cryptocurrency transactions are converted to Canadian dollars at the time of each transaction.
· Fifty percent of capital gains from selling cryptocurrency are taxed as income. Capital gains from selling fiat currency are taxed at a different rate.
· Mining and trading activities related to cryptocurrency qualify as business income and are taxed accordingly. However, similar activities for fiat currency are not considered business income.
Transaction-related expenses for cryptocurrency are treated as deductible expenses, but expenses related to fiat currency transactions may not always be deductible.
To facilitate the tax process, detailed records should be kept for all cryptocurrency-related transactions. However, fiat currency transactions may not require such extensive record-keeping.
It is crucial to remember that the taxation system for cryptocurrency in Canada is still evolving. Nevertheless, it is considered to be well-established compared to other countries.
Indeed, specific guidelines from the Canada Revenue Agency (CRA) clarify the process and treatment of cryptocurrency transactions. This includes all activities related to mining, staking, trading, and investing in cryptocurrency. The tax-collecting agency in Ottawa also provides guidance on calculating and reporting capital gains from cryptocurrency transactions.
Some people may find the taxation of cryptocurrency complex and may not be able to determine their tax liability without the help of a tax professional. Therefore, it is vital to seek the advice of a tax professional to ensure cryptocurrency traders and owners comply with the application of cryptocurrency tax laws and regulations in Canada.
Similar to fiat currency taxation, cryptocurrency tax fraud is always risky.
This can include underreporting profits from trading, mining, or staking, falsifying cryptocurrency transaction records to reduce tax liability, and hiding cryptocurrency assets to evade taxes. The CRA has specific warnings for cryptocurrency taxpayers about the risk of cryptocurrency tax fraud. The CRA activity monitors cryptocurrency transactions and will prosecute any tax fraud related to it.
In the end, it is always in the best interest of cryptocurrency owners and traders to maintain accurate records of all cryptocurrency transactions and seek a tax professional’s advice if they are unsure about their tax liability. Some tax professionals in Canada specialize in cryptocurrency tax planning and preparation and are well aware of the tax treatment of cryptocurrency transactions, calculation of capital gains and losses, treatment of mining and trading activities, and the deductibility of expenses.
Bitbuy employees are not permitted to provide tax advice. Please consult with your tax professional or accountant for such matters. The information contain 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 done entirely at the discretion of you. 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.
