How is Cryptocurrency Taxed in Canada?

**Note, I am not an accountant, nor am I an expert on cryptocurrencies. You should seek the advice of an accountant with experience in cryptocurrencies if you have any serious questions or concerns.

With the explosion of Bitcoin, Ethereum, and whatever other cryptocurrencies that currently exist or will come to exist, many people are starting to invest. These products aren’t exactly new, but they’ve been making headlines as of late for their huge gains (and losses).

If you invested early, you could have easily become a millionaire. As with any hot investment, many Canadians are trying to jump on the bandwagon so they too can make a fortune. Regardless of how much profit these investors make, they’re going to have to eventually deal with taxes. Below you’ll find some common questions and scenarios when it comes to cryptocurrencies in Canada and how to deal with them.

How is cryptocurrency taxed in Canada?

Cryptocurrency is taxed like any other investment in Canada. 50% of the gains are taxable and added to your income for that year. Let’s say you bought a cryptocurrency for $1,000 and sold it later for $3,000. You would have to report a capital gain of $1,000 (50% of $2,000) which would be added to your income and taxed at your marginal tax rate.

Note that the above scenario applies to normal buy and hold investors. If you’re a high volume trader e.g. someone who holds cryptocurrencies for a short period of time or day trades them, the CRA may consider it a business and you’ll have to file your taxes accordingly.

Trading cryptocurrency in your TFSA and RRSP

With any potential capital gain, investors will always try to shelter themselves from taxes. The next logical question people ask is can I trade cryptocurrency in my TFSA and RRSP?

No, you can’t. Nor can you transfer any Bitcoins you currently have into your TFSA or RRSP. Cryptocurrencies operate on their own exchange which does not tie any accounts which are tax friendly.

That being said, there is a way to legally hold cryptocurrencies in one of your tax-friendly accounts. To do this, you can purchase an Exchange Traded Fund that invests in cryptocurrencies such as “GBTC” or “COINXBT.” Keep in mind that these are very new funds with no track record and potentially limited liquidity. In other words, if there’s a major selloff, those ETFs may not have enough cash to full everyone’s sell orders.

Buying goods or cryptocurrencies with cryptocurrency

Here’s where things get a touch complicated. You’re required by law to keep records of your trades. If you didn’t keep records, you need to make your best guess and hope the CRA doesn’t audit you.

These records are vital due to the capital gains you make. Now keep in mind that capital gains can apply in more than one circumstance.

Let’s say you bought 1 Bitcoin for $100 but it has a current market value of $15,000. You decide to make renovations to your home and the contractor agrees to trade his services which are normally worth $15,000 for 1 Bitcoin.

In this case, both parties are liable for taxes. The original Bitcoin owner would pay capital gains on $7,450 (50% of $14,900) while the contractor would still need to report business income of $15,000. The CRA covers the details of taxes for this transaction in this post.

When trading entire amounts, things are easy. However, if you purchase cryptocurrencies at various times at different prices, you need to log all those transactions and calculate your adjusted cost base when selling later.

What if I don’t report my cryptocurrency gains?

You’d be breaking the law, it’s called tax evasion which is a crime that could get you sent to jail. The CRA likely won’t go as far as sending you to jail, but they do want to ensure that they’re getting their cut.

If you fail to report your taxes or you file incorrectly, the CRA could charge you penalties and interest later which could cost you a fair amount of money. Considering how big of a deal cryptocurrencies are right now, there’s a good chance that the CRA is keeping an eye on things.

You may think that these transactions can’t be traced back to you, by usernames exist and so do the exchange records.

Final word

How is cryptocurrency taxed in Canada is not an easy question to answer. If you’re unsure about how to handle your taxes, speak to an accountant who has experience with cryptocurrencies who can guide you through the process or file your taxes on your behalf.  Canada’s tax system is fair, don’t try to cheat it unless you enjoy committing fraud.

By | 2018-02-23T08:33:26+00:00 January 8th, 2018|My Money, Personal Finance|

53 Comments

  1. Brandon January 26, 2018 at 10:48 am - Reply

    What about gains from mining crypto currencies?

    • Barry Choi January 26, 2018 at 5:05 pm - Reply

      If you’re making a profit from mining cryptocurrencies, then you’ll need to pay tax for it. It would be wise to seek the advice of an accountant who has experience with cryptocurrencies.

      • MT February 24, 2018 at 11:20 am - Reply

        Let’s get this straight…the government and central bank is saying they want nothing to do with cryptos. But only want a piece of the gains realized. In short the risks are yours but only gain are ours. It simply sounds like theft and bullying.

  2. Pipo January 28, 2018 at 10:22 am - Reply

    Thank you your article.
    What about crypto to crypto (Btc to eth to xrp to etc)?
    . Do we declare each transaction as a capital gain even if we never cashed in in cad during the year? (Or keep track of them to pay taxes but only at the time of cashing in in cad.. even if it takes years)
    . Do Canada have a policy for tax free long trades (held for over a year) like the US do?

    • Barry Choi January 28, 2018 at 10:42 am - Reply

      Pipo,

      Yes you declare each transaction. Trading cryotocurrency to cryptocurrency is a taxable event, you would need to figure out the fair market value of each currency at the time of the trade which can be difficult.

      There’s no such thing as tax-free long trades unless it’s held within your TFSA. Unfortunately, cryptocurrencies cannot be bought in your TFSA. As far as I’m aware, the US does not have any tax-free long trades.

      If you’ve made a profit, make sure you keep records of all the details including the exact time a trade happened so you can calculate the value at the time. You’ll want to speak with an accountant who has experience with cryptocurrencies.

  3. Midipaou January 28, 2018 at 5:04 pm - Reply

    Hi, just to be more precise with the previous question.
    I understand every trade is a taxable event. But does this mean it will be taxed the same year even if no conversion to CAD was done, and any deposit was put to my bank account ?
    Thanks you.

    • Barry Choi January 28, 2018 at 7:34 pm - Reply

      Midipaou,

      Correct, it still counts as a taxable gain or loss in that tax year.

      • meef February 22, 2018 at 12:31 pm - Reply

        That makes no sense how can you be taxed on money that you haven’t realized? Government doesn’t accept cryptocurrency as payment. So how can I pay them with cash that doesn’t even exist?

        • Barry Choi February 22, 2018 at 12:39 pm - Reply

          Meef,

          If you bought an security and then sold it at a gain, it’s a taxable event. Just because you haven’t withdrawn any physical cash from your accounts doesn’t change that fact. This is no different from selling stocks and not withdrawing the money from your account.

          http://business.financialpost.com/technology/blockchain/if-you-sold-or-used-bitcoin-last-year-the-cra-needs-to-collect-its-due

          • Meef April 1, 2018 at 2:12 pm

            WHile it maybe a “taxable event,” there is NO CASH that is materialized which is what governements accept to pay for taxes. It absolutely is different from selling stocks because you have actual legal tender that the government accepts. Quote all these articles to your hearts content but this does not answer the underlying concern. Unless you are trading than converting to fiat and putting that money aside and then rebuying in with that money can this type of even actually be taxable. If somebody was trading last year and traded at record highs with alot of crypto and that crypto becomes worthless the next year. The tax payer is on the hook for an excess of taxes that the investor can not afford to pay because they continued to hold crypto assets> Absolute non sense.

          • Barry Choi April 1, 2018 at 3:07 pm

            Meef,

            You’ve clearly already made up your mind but taxable events are still taxable even if no cash is materializes. I could switch mutual funds non stop and each even is taxable even thigh cash is not realized.

            In the scenario which you state where the crypto currency becomes worthless, the capital loss would off set any gains, but you would still be on the hook for any excess taxes owed.

  4. Robert Lunge January 30, 2018 at 12:24 am - Reply

    One can purchase a “Profit Trailer” which essentially is a bot that makes trades automatically. There could be hundreds of trades per week depending on the parameters that you establish within the system and the market trends.
    The administration to track all these trades and record miniscule profits would be staggering.
    How would CRA view this?

    • Barry Choi January 30, 2018 at 6:18 am - Reply

      Robert,

      Each trade is a taxable event so you would need to track each for the purpose of taxes.

  5. Glenn February 1, 2018 at 3:48 pm - Reply

    Not true. At the end of the calendar year you simply pay tax on the sum of all realized profits you’ve made from that year. You could have a thousand different transactions, but so what? If at the end of the year you’re up $10k total, then that is simply the amount you deal with. If you were up $10k a week before the year end, and you bought a bunch of coins with all the profit, then you still don’t pay any tax as you only have unrealized profit now, aka your money is tied up again.

    • Barry Choi February 1, 2018 at 4:10 pm - Reply

      Glenn,

      But each transaction you made to put you up $10K is a taxable event. Just because you bought $10K more in coins a week before the year is up that doesn’t mean you don’t owe taxes.

      Now, if you bought $1K in Crypto in Jan, and didn’t make any trades with it, but as of Dec. 25th, it’s worth $10K and you haven’t sold it. Then yes, it’s an unrealized gain.

      However, if you traded that $10K in crypto for something else on December 26th, it’s a taxable event.

  6. Glenn February 2, 2018 at 4:45 pm - Reply

    But using your theory you would be paying taxes on unrealized profit! So if the $10k you put into new coins on Dec 25th dropped to $0 on Dec 31st, you would be paying taxes on $10k worth of money that simply doesn’t exist. It is not a gain. It did not increase your net worth. It’s only AFTER you actually sold and put a realized profit into a taxable account or withdrew as cash or used the profit that you must pay taxes on it. You could make a million dollars in unrealized profit and then lose it all and be just fine with the CRA. They would start bankrupting people quite quickly otherwise. You can juggle your unrealized profit around as you wish your entire life, whether you buy more of a coin, buy a new coin, or both, and still never pay taxes on it. BUT once you decide you want that profit, and cash it out or buy goods or services with it, then the amount that all the profits added up to at the end of that calendar year is absolutely taxable.

    • Meef April 1, 2018 at 2:16 pm - Reply

      Glenn I’ve been arguing the exact same thing. In fact I know a guy who called into the CRA and they say when you cash out is when you pay. While all these sources say otherwise – I agree with this understanding to be the correct one. The other way of taxing would put people in a very compromising position,

      • Barry Choi April 1, 2018 at 3:11 pm - Reply

        Meef,

        I would never trust someone who simply said they talked to the CRA and they said you only pay when you cash out. I advise speaking to an accountant for yourself and see what they say.

  7. Glenn February 2, 2018 at 5:09 pm - Reply

    “However, if you traded that $10K in crypto for something else on December 26th, it’s a taxable event.”

    It’s called capital gains, because you literally gain capital. How does moving money you have in one coin to another coin gain you any capital?? You could easily lose it all the next day. But oh well too late you already paid taxes on imaginary money that you never actually gained. Doesn’t that sound ridiculous? If you don’t ever sell, and keep all profit unrealized, then there is nothing to claim. You did not gain anything. If you sold, then absolutely.

    • Barry Choi February 2, 2018 at 5:41 pm - Reply

      Glen,

      We can agree to disagree, and I recommend you speak to an accountant regardless. But think of bitcoins as commodities for a second.

      You buy $1K in gold in January.

      In December, it’s worth $10K and you decide to trade it for $10K in silver.

      Well even though you haven’t sold, you’ve gained $9K since that trade was a taxable event.

      Now if you didn’t make that trade and kept it as gold, then yes, you’re right, it’s an unrealized gain.

      Buying bitcoin or any other cryptocurrency and holding it until you’re ready is straightforward. However, if you’re trading various currencies, you need to consider them a taxable event.

      Another example is if I owned a mutual fund and I want to switch it to a different fund. Although I’m making a switch, I’m technically selling one fund to buy another. If the fund I’m selling had gone up in value, I’m paying capital gains (or claiming a loss) on that switch.

      • Glenn February 2, 2018 at 6:56 pm - Reply

        That just seems so crazy to me. I can’t seem to make sense of it, but I appreciate your patience, lol. So if that silver you bought went down below the $1 you paid in gold to buy it, it’s not like you would get reimbursed for the taxes you paid on lost money, so would lose money twice. Even though you never realized any profits, you just kept it all in commodities?! That’s almost like stealing 🙂 I thought for sure it was simply just a big tally of any actual real profit you took from liquidating your coins or commodities in a given a year that you get taxed on. Thanks for enlightening me!

        • Barry Choi February 2, 2018 at 7:32 pm - Reply

          Glenn,

          Well you could technically get those taxes back. If you sold it at $1, you now have a realized loss of $9,999 which is a capital loss that pretty much cancels that gain of $9K you made when you made the trade. Make sense?

          You’re half right. Like I said, as long as you’re not trading or selling, it’s an unrealized gain. Adding additional funds and buying more crypto is also not a taxable event. But once you sell or trade, it’s a taxable event even if you don’t physically take the money out of your account.

          Now if this was within your TFSA (where crypto can’t be traded), then those tax events would not apply.

          • Kyle February 2, 2018 at 8:54 pm

            Thanks Barry. You’re very helpful. For an example, I put $90 CAD into a Crypto Wallet, and then used that cash to buy Bitcoin on Dec 20, then leave the bitcoin for say, a month (Jan 20) and that $90 worth bitcoin is now $180 worth; it doubled. I decide to cash that bitcoin back to Canadian Dollars and deposit $180 into my bank account. That money is now taxable since I made a gain of $90. So half of the $180 is taxed?

          • Barry Choi February 2, 2018 at 10:24 pm

            Kyle,

            Since your gain is only $90 ($180 – $90) you pay capital gains on 50% of that amount works out to $45.

          • Glenn February 2, 2018 at 10:58 pm

            Yea ok I getcha, capital loss makes sense. I didn’t think you would have to claim both the gain and the loss if they cancel each other out, simply the outstanding profit. Thanks for helping me understand 🙂

  8. Justin Belanger February 10, 2018 at 6:56 pm - Reply

    Taxation is theft.

    • Barry Choi February 10, 2018 at 7:10 pm - Reply

      Justin,

      Taxes is what pays for all the services you get from the government such as free healthcare.

      • Justin belanger February 10, 2018 at 11:23 pm - Reply

        I’m not completely against taxes, but they over tax everything. In my province, you can’t even find a family doctor. So while I may get free healthcare, I’m not receiving adequate healthcare for the taxes I pay.

      • Chucj March 3, 2018 at 3:56 pm - Reply

        Hi,
        Not to be a you know what, but if we pay for healthcare then it is not free.
        We pay taxes for services rendered (no matter how poor the services) which is the notion of taxation.

  9. Cole February 10, 2018 at 9:15 pm - Reply

    So the easiest way to deal with crypto transactions is to buy a lump sum a few times a year, record market values at that time. Leave them alone and only claim capital gains when cashing them out? As long as they remain the same crypto it is only an unrealized gain until they are sold?

    • Barry Choi February 10, 2018 at 10:20 pm - Reply

      Cole,

      Correct, you would basically be buying and holding until you’re ready to sell. The gain or loss only gets reported when you actually sell.

  10. cole February 10, 2018 at 10:29 pm - Reply

    great info Barry, thanks

  11. Tony February 11, 2018 at 11:58 am - Reply

    Excellent thread, thanks all.

  12. Jim February 14, 2018 at 11:55 am - Reply

    So , if I buy digital currency keep track of purchase price , and hold it , I only have to report capital gains, or loss on the portions of digital currency I decide to sell in the taxation year i sell them ?

    • Barry Choi February 14, 2018 at 12:06 pm - Reply

      Jim,

      Correct. So say you buy for $1,000 in 2018, but then sell in 2020 at a price of $10,000. You would have a capital gain of $9,000 which would be reported on your 2020 taxes.

      • Jim February 14, 2018 at 12:09 pm - Reply

        Thank you Barry !

    • Shawn April 4, 2018 at 11:44 am - Reply

      What if the crypto moves wallets? if I move 1 BTC from my wallet on the mining pool I use to my private wallet? is that taxable? I’m not selling or trading it for another type of crypto, just moving from place to place.

      • Barry Choi April 4, 2018 at 2:02 pm - Reply

        Shawn,

        To me, that sounds something similar to switching brokerages with say stocks so it wouldn’t be taxable.

  13. Anonymousse February 15, 2018 at 5:30 am - Reply

    Hi Barry, regarding the duration of the “hold period”

    1) What is considered as long enough of a “hold” on the crypto before selling to not be considered as a business trader? You previously gave an example of 2018(buy) to 2020(sell); what if you held it for one month instead of two years, let’s say Feb.2018 (buy) to March 2018 (sell)?

    2) Could it be even shorter than 1month? e.g. 1week perhaps? Or even days?

    3) And how many trades are you allowed per taxation year before being deemed as a business trader?

    Thank you!

    • Barry Choi February 15, 2018 at 7:31 am - Reply

      Hi Anonymousse,

      What you’re describing is a bit of a gray area which is sort of referenced in this article.

      http://business.financialpost.com/personal-finance/stop-using-your-tfsa-to-frequently-trade-stocks-the-cra-may-see-it-as-business-income

      How long you hold it may or may not matter to the CRA. Holding something for a week or days is not uncommon. But lets say you made 100 trades in 2 years, you might get flagged.

      That being said, if you have a full time job that has nothing to do with investing, you could argue that it’s purely a hobby so it should be taxed as capital gains and not regular income.

      As for how many trades you’re allowed, that again falls into the whatever the CRA feels like area. There’s no set number.

      • Phil February 15, 2018 at 12:23 pm - Reply

        Hi Barry,

        I have a few questions about business income vs capital gains.

        If I made around 100 trades last year simply to balance my portfolio with the goal of holding my coins for at least a year or more:
        1. For 2017 I expect it would be considered as business income even if I only made something like 400$, but with that in mind, do I still calaclute my gain using the ACB method and can I just input all my gain in 1 income labeled as « Cruptocurrency gains »?
        2. If I don’t trade during this year but I sell all my coin at the end of this Decembre, would it be considered as capital gains?

        I find it complicated when there is grey zone like that.
        Thanks

        • Barry Choi February 15, 2018 at 4:28 pm - Reply

          Phil,

          To be honest, it’s really hard for me to advise you there. It’s completely a gray zone and you could argue that it’s not business income despite the fact that you made a 100 trades if this isn’t your full time job. I’d honestly look for the advice from an accountant who has experience with cryptocurrencies.

          If you didn’t trade during the year, and you sell at the end of December, for sure it would be a capital gain.

  14. M.M February 15, 2018 at 7:52 am - Reply

    Hi Barry,

    Thanks for taking the time to write this article and answer all the comments. Here’s my situation:

    I invested close to 10k on btc during the summer and fall of 2017. I bought through a btc atm with spare cash i had. In october and november i started to diversify my portfolio (eth, xrp, ltc, bcc, etc) and invest in some ICOs through different exhanges. In december i started doing short term trades to diversify even more (and minimize risk). I currently own around 35-40 coins, half of which i bought before they were out in the market. My total investment is know worth 27k, and i have probably done hundreds if not thousands of trades both with losses and gains. I have been keeping track of my overall profit with a speadsheet and of the trades with Coinigy. And Im extremely confused about taxes. I havent converted anything back to fiat yet, but Im wondering if i am already considered a day trader and what the implications for my taxes are once i withdraw the money. Is there any software that you know of that can help me with this? Thanks in advance.

    • Barry Choi February 15, 2018 at 4:30 pm - Reply

      M.M.,

      Depending on how many trades you made, you may not be conisdered a day trader. I would advise taking your records to an accountant who has experience with crypto for advice as this goes way beyond my knowledge of taxes.

  15. Monk February 22, 2018 at 3:21 pm - Reply

    Hi Barry,

    What about if your friends or family gives you money and you buy crypto for them, then cash it in for them and give them all of the gains. Are you taxed for that, or, since the gains go to the friend or family member, is the tax paid by them?

    • Barry Choi February 22, 2018 at 3:26 pm - Reply

      Monk,

      I’m assuming you would be buying it with your own accounts. If that’s the case, you are the one being taxed on it. Now if they opened an account in their own names and you just happen to do the buying and selling on their behalf, then they get taxed.

      • Monk February 22, 2018 at 3:38 pm - Reply

        That makes sense. Would it be possible to get them their own account and then send the crypto to that account and sell it under their name? or do they also have to be the ones who purchased it in the first place? I.e. I would buy it, make a couple trades and then transfer it to their account to convert back to fiat

        • Barry Choi February 22, 2018 at 5:34 pm - Reply

          In your example, you’re simply giving away cryptocurrency so it’s still a taxable event. Cryptocurrency is treated like a security e.g. stock as opposed to cash, so if you give it away, you’re disposing it at market value.

          The only way you wouldn’t be taxed is if they opened up an account in their own name. They then gave you the login information and you made the trades in their account. Everything is done under their name so it’s taxable in their names.

          However, keep in mind if this was a real brokerage and you were trading stocks, the brokerage would require legal documents signed to allow you to trade on their behalf. Crypto is a complicated thing, you should speak to an accountant.

          • Brian February 23, 2018 at 12:12 am

            Hi,
            If I give my bitcoin to my overseas family that is not Canadian, do I have to pay tax? Does it count as a gift?
            A gift is not taxable, right? And how do they know I gave the bitcoin to my overseas family?

            If I send the bitcoin from Canadian exchange to my hardware wallet, how do they know if I still have bitcoin or not? Even they ask the exchange to give them my transactions, how do they tell if I did sell my coins or not to international exchange like Binance or I sell it to local people?

          • Barry Choi February 23, 2018 at 8:32 am

            Brian,

            Cryptocurrencies are considered a security so when you’re gifting them ‘in-kind’ you would be disposing them at its current value which in turn means you’d have to pay taxes. Since I don’t work for the CRA, I can’t explain how they would know, but not declaring capital gains is considered tax evasion.

            http://business.financialpost.com/personal-finance/taxes/jamie-golombek-the-dos-and-donts-of-tax-free-gifts-in-canada

  16. Kevin DaCosta March 2, 2018 at 1:45 am - Reply

    The realization of Capital gains is only recognized as a taxable event by entities who are required to report such events upon conversion from Crypto to fiat, this can be avoided by peer to peer transactions where it is not encumbant upon the seller or receiver to report such transactions for the purposes of taxation. if Crypto for fiat transactions are completed on platforms that facilitate peer to peer buying and selling the seller will not realize a capital gain that is on a Ledger as the buyer is not required to report the transaction the seller is not implicated.

  17. cryp April 3, 2018 at 9:47 pm - Reply

    Do you know if transaction fees (mining fees) can be added to the commission when calculating the ACB?

    For example if one buys bitcoin on coinbase, then moves it to Binance to trade to another coin. There is a coinbase fee when buying bitcoin and then the mining fee (transaction) to send to Binance, can the mining fee be added to coinbase’s buying commision fee in the ACB calculation?

    • Barry Choi April 3, 2018 at 10:19 pm - Reply

      Cryp,

      I’m not an accountant, but adding your transaction fees to calculate your ACB sounds like the right thing to do.

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