Since the world’s first Bitcoin ATM opened in Vancouver in 2013, crypto adoption across Canada has been unstoppable. The excitement over the digital currency is far from waning, although taxation can be a challenge for new owners.
If you’re new to cryptos, taxation is one subject you must master, if only to avoid trouble with the Canada Revenue Agency (CRA). Yes, the CRA can trace crypto transactions despite their relative anonymity.
In fact, since January 1, 2022, all money services in Canada are obliged to notify the CRA of all transactions above $10,000, including cryptos. Read on to learn more about cryptocurrency taxation in Canada and how to ensure compliance.
Crypto as a Commodity
In Canada, crypto works as a commodity for tax purposes. When you buy or hold cryptocurrency, you don’t pay taxes. However, selling, mining, or other crypto-related activities are subject to capital gains or business income taxes. Whether your transactions are part of business, 50 percent of capital gains and 100 percent of business income will be taxable.
Note that crypto isn’t legal tender, so using it for purchases is considered a barter transaction with tax implications. Some transactions are also tax-free, such as buying and holding crypto with a fiat currency and receiving crypto as a gift. Transferring crypto between your own wallets and creating a Decentralized Autonomous Organization (DAO) are also non-taxable.
Calculating Crypto Gains
To calculate your crypto taxes in Canada, determine if you’ll be paying taxes on 50 percent or 100 percent of gains, depending on your trading status. Typically, 50 percent of profits from buying and selling crypto are taxable. The CRA requires using the adjusted cost basis method, factoring in fees. You can choose the fair market value (FMV) at acquisition or year-end, opting for the lower value.
Tips for Filing Crypto Taxes in Canada
Navigating crypto taxes in Canada requires attention to detail and adherence to tax regulations. Here are some essential tips for filing your crypto taxes:
Seek expert help
The first thing you must learn about crypto taxation is the importance of seeking expert help. A consultation can give you valuable knowledge, whether calculating how much you owe or rectifying errors on your past returns through the CRA Voluntary Disclosure Program.
Incorporate crypto transactions into your ITR
Ensure you include crypto transactions in your annual income tax return (ITR) to comply with Canadian tax laws. Failure to report crypto income can result in penalties or audits, so it’s crucial to fulfill this requirement accurately and promptly.
Report capital gains from crypto sales
When reporting your taxes, pay attention to capital gains from crypto sales. Whether you’ve sold Bitcoin, Ethereum, or any other cryptocurrency, you must report these gains accurately in the income section of your tax forms to maintain compliance with Canadian tax regulations.
Use adjusted cost basis for capital gains
Utilize the adjusted cost basis or average cost methods when calculating capital gains from your crypto investments. These methods help ensure accurate reporting by averaging the cost of your purchases.
Offset capital losses against gains
Capital losses from crypto sales can be offset against capital gains, providing potential tax benefits. However, it’s important to note that crypto losses cannot offset losses from other sources.
Keep records of your transactions
Accurate record-keeping is essential for fulfilling your tax obligations and may help streamline tax filing. Consider using dedicated software or platforms to track your crypto transactions efficiently and ensure compliance with Canadian tax laws.
Canada’s crypto taxation process is almost as unconventional as the digital currency itself. Even if you’ve owned and paid taxes for cryptos for a while, being extra vigilant about regulatory changes always pays in preventing a CRA audit and all its accompanying hassles.
