**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.
Are you wondering how is cryptocurrency taxed in Canada? With the explosion of Bitcoin, Ethereum, and whatever other cryptocurrencies that currently exist or will come to exist, many people are starting to invest. There’s money to be made (or lost), and you need to pay your fair share of taxes.
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. If you’re new to cryptocurrency, be sure you read this post on the 7 things you need to know about cryptocurrency before you start investing.
How is cryptocurrency taxed in Canada?
Cryptocurrency is taxed like any other commodity 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.
Most people who invest in cryptocurrency aren’t going to buy and hold. They’ll likely be trading it around. While you don’t get taxed for owning crypto, there are events that are taxable such as:
- Selling or gifting cryptocurrency
- Trading or exchanging the cryptocurrency for another cryptocurrency
- Converting cryptocurrency into fiat
- Using crypto currency to buy goods
Every time you buy, sell, or trade cryptocurrency, it’s a taxable event and needs to be reported on your taxes. There is no way around this so do keep detailed records.
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.
Moving cryptocurrency from one wallet to another
If you’re simply moving your cryptocurrency from one wallet to another e.g. from Coinbase to GDAX or your own wallet then it would not be a taxable event as long as you haven’t sold any of your cryptocurrency during the process.
That being said, there might be some tax implications . . . sort of.
Let’s say you paid a $10 transfer fee, well that would be a transaction cost which you could deduct from your capital gains later. The same applies to any fees you incur when you buy or sell your crypto.
Keeping records of your transactions
Many cryptocurrency exchanges have terrible records, so you shouldn’t rely on them to get all of your trading history. You’re better off keeping a detailed summary of all the trades you make. Start a spreadsheet and start tracking the following:
- Transaction dates
- Buy, sell, and trade values
- Units bought, sound, or traded
When possible, you’ll also want to keep records of the following:
- Receipts of purchase
- Digital wallet records
- Cryptocurrency addresses when trading with other individuals
- Exchange records
Basically, you want to keep as many detailed records as possible. There’s nothing illegal about owning or trading cryptocurrency, but the CRA wants their fair share of taxes. To calculate what you owe, you’ll need all of your records. They’ll also be handy if you ever get audited.
Cryptocurrency tax breaks
There are a few situations where you can use cryptocurrency to lower your taxes. Any capital losses from cryptocurrency can offset any capital gains. To be clear, this only applies if you have capital gains to claim. If you went all YOLO with your savings on cryptocurrency and lost everything, you wouldn’t be able to claim that to reduce your income.
If you run a cryptocurrency business such as mining, trading, or an operating an exchange, you could claim any relevant business expenses on your taxes. That could include things such as utilities, rent/mortgage, computer equipment.
Should I use an accountant?
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. That said, they’re still going to need some kind of paper trail to help you out.
Another solution is to try TurboTax Live Full Service since you’ll get access to a tax expert who can file on your behalf. You can ask them as many questions as you want and you only get charged when you actually file.
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?
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, but user names exist and so do the exchange records.
How is cryptocurrency taxed in Canada is not an easy question to answer as there are many different things to consider. Canada’s tax system is fair, don’t try to cheat it unless you enjoy committing fraud.