It is often the case that individuals who start dealing with cryptoassets think that these assets are exempt from taxation. But the truth is that cryptocurrency is taxable in Canada. If you trade BTC, ETH, or other digital coins, find out how cryptocoins are taxed by the Canada Revenue Agency (CRA).
Following the CRA, Canadians do have to pay taxes on their cryptoassets, although they are not defined as legal tender. Indeed, the CRA deems it like it would a commodity, as specified in the Income-Tax Act meaning that profits and losses have to be reported. Non-fulfillment of reporting on profits and losses from such operations is illicit, even if it’s done through the conversion of one digital unit to another.
Cryptocoin is also deemed as capital gain or business earnings for those who receive profits from crypto operations. If there happened a loss, it translates to capital or business losses. Particularly, the tax payer has to emphasize crypto operations that result in capital profits. Not each crypto operation is classified as a business activity.
Also, from a tax perspective, a cryptocoin can be counted as a barter transaction. For instance, someone uses cryptocoins to pay for a service or product. Accordingly, a barter transaction is an exchange of products or services without any legal currency. Given the fact that the CRA doesn’t define cryptoassets to be legal tender, it is deemed as barter.
In the respect of business income, 100% of crypto profits fall under tax obligations. For capital incomes, this is reduced to 50%.
Holding cryptocoins does not require to be taxed. However, performing any of the below-mentioned activities leads to tax liability:
The way that Canadian citizens report their cryptocoins on their taxes will be subject to whether it is a capital gain or, otherwise, business income. If considering the categorization of cryptocoins as business income, we will find the following types:
According to the CRA, crypto mining, trading, exchanging, and ATMs – all are regarded as businesses operating with crypto and are subjects to taxation.
If a cryptocoin counts to be a capital gain, it subject to tax. Canadian law defines the such categories for capital gains as:
When completing the declaration, Canadians need to list any gains from selling cryptocoins in the income portion of their taxes.
As specified in Canadian law, individuals must use the adjusted cost basis or average cost (ACB) to estimate their capital gains. To put it shortly, crypto traders must assess a single average for each cryptocurrency. For instance, person A purchases BTC at 2 separate times in the year and BNB at 3 separate times and sells them all within the same year. That being the case, the ACB would be the average of the 2 BTC purchases for BTC and the average of the 3 BNB purchases for BNB.
Taking a look at technical conditions for classifying cryptocurrency transactions on taxes can be challenging. To bring light to taxation, consider the below-mentioned cases and how each would be taxed.
The most essential aspect that should be taken into account is that Canada taxes crypto earnings. As this type of taxation is still introduced recently and may evolve, it is reasonable to have a consultation with a tax accountant specializing in cryptofield. The most convenient method to ensure you follow the duly protocol is to have the expert file your taxes. As with any other type of investments, it’s essential to be knowledgeable of how your transactions will be taxed prior to starting dealing with cryptocoins.
In this regard, the CRA has developed comprehensive guidelines on cryptoassets and taxes, which are available on its website.