Holly Chase

2 weeks ago

Guide to Crypto Taxation in Canada in 2023: Do You Need To Pay Crypto Taxes?

A lot of people wonder, is cryptocurrency taxed in Canada? Yes, it is. There are several types of crypto transactions that are taxable. In this article, we will explain everything you need to know about paying cryptocurrency taxes in Canada.

We will tell you what you have to pay tax on, what type of tax you will have to pay such as capital gains taxes, income tax, how to calculate crypto taxes this year and more.

Read on for our ultimate guide to paying taxes on cryptocurrency in Canada in 2023. 

Crypto taxes in Canada

How is Crypto Taxed in Canada?

The Canadian Revenue Agency (CRA) treats cryptocurrency as a commodity for tax purposes. Commodities are things like oil, silver, or gold. It means that any profits made are considered business income or taxable capital gain

What Crypto Transactions Are Taxable In Canada?

Different bitcoin transactions in Canada

Any sale or transfer of cryptocurrency is called a disposition and you may have to pay taxes on these. Dispositions include:

  • Selling crypto for fiat
  • Trading one crypto for another crypto 
  • Using crypto to pay for goods and services
  • Giving crypto as a gift

Selling Crypto for Fiat

Selling crypto, whether you make a profit or loss, counts as a taxable transaction. You can purchase crypto and hold it for as many years as you like without having to report this purchase to the Canada Revenue Agency.

If you sell your crypto assets, you will need to report it on your tax return. You will pay capital gains tax or business income on your crypto earnings.

Trading crypto for another crypto

Trading one crypto for another counts as a taxable transaction so you will have to pay tax on trading crypto. For example, there’s an altcoin you have your eye on, but you can’t purchase it directly with fiat, so you have to buy Bitcoin in Canada first.

Once you’ve bought Bitcoin, then you can buy the altcoin with the Bitcoin you just bought. Since you are trading crypto to crypto, this counts as a taxable event.

Purchasing a new coin during its ICO with another coin also counts as a taxable event

Using crypto to pay for goods and services

You might have tax implications if you use cryptocurrency in exchange for goods and services.

Canada does not classify cryptocurrency as a currency, despite the name. It is classified as a commodity. This means that when you pay for something with a commodity, you are making a barter transaction. A barter transaction is when you and the other party agree to exchange goods or services without legal tender (like Canadian dollars). 

The person receiving the crypto will have tax obligations and will most likely need to report it as business income.

The person spending the crypto might also owe taxes and have to pay tax on capital gains.

For example, you purchase 0.0017 BTC for $100. The next day, you use that Bitcoin to purchase an item. It doesn’t matter what it is or what it costs. The price of Bitcoin has gone up and your 0.0017 BTC is now worth $110.

Since you disposed of your BTC to buy something, that counts as a sale of your commodity. That extra $10 would be considered a capital gain. If, however, 0.0017 BTC was now worth $95 at the time you used to purchase the item, that would count as a capital loss. You can refer to this profit & loss calculation below:

Asset Bought Price Asset Sold Price Profit/Loss
0.0017 BTC $100 0.0017 BTC $100 +$10
0.0017 BTC $100 0.0017 BTC $95 -$5

Canadian investors need to therefore keep track of all transactions involving cryptocurrency. A single cryptocurrency transaction could have tax consequences.

Gifting Crypto

Donating or giving someone crypto counts as a disposition of property. The receiver does not need to pay tax but the giver might have cryptocurrency capital gains.

How much tax you pay depends on if the value of the crypto increased between the time you bought it and gave it away, since that would count as a capital gain. If the digital assets lost value in that time, that would result in capital losses.

Is Crypto Taxed as Business or Personal Income In Canada?

Crypto income with Bitcoin in Canada

You might be wondering how you report cryptocurrency taxes in Canada. Profits are usually treated as business income or capital gains. Any losses are treated as business losses or capital losses. Let’s say you bought Bitcoin at $42,000 and sold it at $50,000. You would pay capital gains tax on 50% of that profit. If you bought bitcoin at $50,000 and sold it at $42,000, that loss would be treated as a business loss or a capital loss and can be offset against your total business income or capital gains for that year. 

Should You Report Crypto On Your Taxes as Business Income or Capital Gains In Canada?

Bitcoin and capital gains imitation with Canadian flag

If you are reporting your crypto transactions as business income, you will need to fill out form T2125 with your tax return.

If you are reporting cryptocurrency transactions as capital gains, you need to fill out the Schedule 3 section on your tax return.

Only 50% of capital gains are taxable whereas 100% of business income is taxable.

Reporting Crypto

So how do you determine if you should report cryptocurrency transactions as business income or capital gains?

Report crypto dispositions on your taxes as business income if you:

  • Operate cryptocurrency businesses that involves crypto business activity e.g. running an exchange or ATM, sell cryptocurrency
  • Have a business plan
  • Regularly trade cryptocurrency e.g. you’re a day trader
  • Intend to make profits
  • Undertake activities in a business-like way e.g. you have a business plan or seek investors for your business

These activities may be suggest you are operating a cryptocurrency business. It might mean you have to pay business income tax. There may be cryptocurrency tax breaks in the future to incentivize more people to invest in crypto or run crypto businesses.

Taxes on Crypto Mining in Canada

Crypto mining is treated a little differently. If you mine crypto as a hobby and keep it, you don’t need to report this activity to the Canadian Revenue Agency.

However, if you eventually sell your crypto, you will need to report it as capital gains.

If you’re mining cryptocurrency and sell it for a profit regularly, this counts as business income. 

Report crypto dispositions as capital gains and losses if you treat your crypto purchases as investments and you don’t operate any kind of commercial business involving cryptocurrency.

Taxes on Staking Crypto in Canada

The Canadian Revenue Agency has not released specific guidance on staking cryptocurrency but it is generally treated much like interest or dividends.

You will need to report crypto investments that you stake as income on your tax return and you will be charged at your marginal tax rate.

If you stop staking or yield farming and then sell your crypto asset, you will still need to pay capital gains tax on profits as outlined above. 

How to Report Your Crypto Taxes in Canada in 2023

Crypto taxes in Canada

Taxes are part of life and if you don’t accurately report your income, the Canada Revenue Agency (CRA) may fine you (or worse).

Keep in mind that CRA can track cryptocurrency in some cases and they treat tax evasion very seriously. While it may seem daunting, it’s extremely important to pay taxes accurately and declare all crypto gains when filing your tax return.

If you’re suspected of money laundering then the CRA will come down hard on you. If you’re selected for an audit, this is done on a case by case basis and can be time consuming and costly.

We will show you how to use a crypto tax calculator to make your life a little bit easier when you report taxable income and capital gains. 

When it comes to cryptocurrency taxation, you need to make sure you understand what counts as income and what counts as capital gains.

If you simply buy and hold crypto then you do not need to report this on your taxes. 

Reporting Your Crypto Income

If you stake crypto (read here our guide on crypto staking for Canadians), receive rebases, or lend stablecoins, then anything you receive in return counts as staking income.

You will need to total the amount up and add it to your total income for the year so you can pay the correct amount of income tax.

Reporting Your Crypto Trading Income

If you trade one crypto for another, this can incur a capital gain or loss. If you sell crypto for fiat, this can also incur a capital gain or loss depending on if the value went up between the time you bought and sold. 

Using Koinly to Report Crypto Taxes In Canada

Koinly is a free-to-use crypto tax calculator that can help you file your income tax return in Canada.

Koinly is compatible with Canada’s tax treatment and regulations and if you have a paid plan, you can print tax reports including an income report, capital gains taxes report, and a buy/sell report.

Koinly Limitations

Although Koinly will not know your tax rate, personal tax allowance or calculate how much income tax you must pay in any given tax year (since you can’t enter employment income or any other income) it can help you with identifying what is taxable in Canada when it comes to crypto capital gains and crypto earnings.

While Koinly is suitable for Canadian crypto investors, it is also compatible with many other countries including the UK and USA. 

Koinly can automatically detect your cryptocurrency income and capital gains and calculate a total for you which you can report on your income tax return.

Of course, the total amount of income tax or capital gains tax you must pay depends on other factors such as your tax rate, reasonable costs incurred, other business income, whether you have a spousal tax credit, and many other factors.

Koinly is easy to use, fast, and makes reporting crypto taxes much more simple. 

Step 1 – Sign up

Adding exchanges to report crypto taxes in Canada

In order to use Koinly, you first need to sign up for an account on the Canadian page with your name and email address. 

After that, you can start adding all of the crypto exchanges and wallets that you have used. Koinly needs to have access to all of your information so it can accurately report your crypto income and capital gains. 

For example, if you bought bitcoin in 2017 and sold bitcoin in 2021, Koinly will need to have access to both the 2017 and 2021 transactions. If Koinly only has access to the 2021 transaction, it will assume your cost basis – the price you bought bitcoin – was zero. This will result in a higher capital gains tax liability.

Therefore, you must give Koinly all of your crypto transaction history and cryptocurrency addresses so the software can accurately calculate your liability.

Step 2 – Add Exchanges

Adding exchanges to report crypto taxes in Canada

To add the crypto exchanges and wallets you have used, click “wallets”. Then, select or search for your crypto exchange. Koinly supports hundreds of exchanges and wallets including the most popular among Canadians like BitBuy, Coinberry, Shakepay, Newton, and more. 

How to Upload Crypto Exchange Data

Say you have traded cryptocurrency on Binance. Select Binance and then you will be given a choice to either import your transaction history via a file or automatically via an API key. 

If you choose the API key option, you can find this key in your Binance account by going to your profile and “API Management”. Here, you can generate an API key and API Secret for your account. Paste this into Koinly. Other crypto exchanges will also allow you to generate an API key for use with Koinly. 

Adding Binance to report crypto taxes in Canada

In some cases, only six months of your transaction history will be imported when you select this method. To get your full transaction history you can import a spreadsheet. Go to your crypto exchange and in your account dashboard there should be an option to export your transaction history. Upload this file into Koinly. 

Importing Crypto Transactions from Crypto Wallets

You can also import transactions from your hardware crypto wallets and soft wallets, simply by uploading your transaction history file.

You can find your transaction history in Ledger Live. 

Importing crypto transaction in order to report cryptocurrency taxes in Canada

Step 3 – Review Transactions

Once your transactions have been uploaded, visit the “transactions” page.

Here, you will see all of the transactions you have made in 2021 and beyond.

It is important to go through each and every transaction and confirm the cryptocurrency transactions are correct.

Koinly will automatically detect crypto asset staking rewards and label them “rewards”. All rewards count as income and Koinly will add them all up for you.

Reviewing cryptocurrency transactions in order to report crypto taxes in Canada

If you have a crypto Visa card, Koinly will automatically detect your cashback and label them as “deposits”.

Since cashback and deposits do not count as income tax, you do not need to make any changes here. 

Paying with Crypto Tax Repotinh

Remember if a business accepts cryptocurrency and you use crypto to pay for goods and services, it counts as a barter transaction and the same tax rules apply.

Koinly will calculate the adjusted cost basis (the fair market value) at the time you bought the crypto and when you disposed of it.

If you have bought and sold crypto or you’re trading cryptocurrency, or mining cryptocurrency, Koinly will automatically detect these transactions and label them appropriately so the correct tax treatment can be applied. 

Remember, swapping capital assets like crypto can incur capital gains tax depending on if there is a capital gain or capital losses.

Koinly will calculate the fair market value of the capital property at the time you bought and sold then will label the transaction and note whether there is a capital gain or capital loss for tax purposes.

Detecting crypto-to-crypto transaction on order to report taxes

If you have a capital gain or loss, Koinly will show the amount in either green or red.

Your total capital gain for the tax year is shown in your Koinly dashboard.

If you have moved crypto from one wallet to another where both belong to you, this is a transfer and Koinly will label it as transferring cryptocurrency.

Reporting crypto loss on crypto taxes

Editing Transactions

Koinly is not 100% accurate and that’s why you must check and confirm cryptocurrency transactions and edit any that are wrong.

You can do this by clicking on the three dots next to a transaction. If the value for a token is missing, you can manually enter it.

If Koinly gives an error that it’s missing purchase history, this means that Koinly has one half of a transaction but not the other. For example, it may be that Koinly can see where you have sold a crypto but can’t see where you bought it in the first place. Make sure you have added every exchange you’ve ever used so that Koinly can see all transactions. 

In some cases, Koinly may not know about fees you have paid. If you pay Ethereum gas fees, the transaction may appear labelled as “sent” but you can edit this and change the label to “cost”. Costs are tax deductible, so it’s worth your time to go through the transactions and ensure everything is correct. 

What’s handy is that your crypto transactions will remain, so you can use them to calculate income tax and other tax liabilities for future tax years.

Step 4 – View Tax reports

Once you have checked through your transactions, you can visit the “tax reports” page. Here, you can see a breakdown of your crypto income and costs and get an idea of the tax treatment that will be applied. 

If you use the free version of Koinly, you won’t be able to see your capital gains for the year, nor will you be able to download any tax reports. We think it is worth getting a paid plan to view these reports for the tax season.

If you seek help from tax agencies or a tax professional, they will want to see exchange records and records of all of your transactions, so it can save a lot of your time to simply download these reports from Koinly.

Conclusion on Koinly

Koinly can be a big help when you have to report cryptocurrency on taxes in Canada. If you simply buy and hold crypto, you won’t need to report anything, but as soon as you trade, sell or stake crypto, then it becomes much harder to track.

Crypto transactions can add up, especially if you make a few trades a week or even monthly. Keeping track can be time consuming since you must note down the price of the asset at the time you bought and sold it.

You must also note down the value of crypto staking rewards you received at the time you received them. If you’re receiving rewards daily this process soon becomes impossible, especially if you stake more than one asset in more than one place.

Using a crypto tax calculator like Koinly is therefore the easiest option when it comes to calculating tax on crypto. It does all of the hard work for you.

Using a crypto tax calculator like Koinly can save you a lot of time and hassle. We have been using Koinly for a few years now and recommend it to anyone looking to declare income tax from crypto or calculate crypto capital gains. 

You can check our Koinly review here or sign up here.

How is GST/HST Calculated On Cryptocurrency in Canada?

GST and HST when filing annual crypto tax report in Canada

Anyone must remit GST/HST to the CRA if they are a business owner or self-employed and earning more than $30,000 per year from these activities. If you get paid in crypto for your goods and services, you must calculate the GST/HST at the fair market value at the time of the exchange. It’s important to keep accurate GST cryptocurrency records for anyone who runs a business or is self-employed. 

Can I Invest in Crypto Tax-Free In Canada?

Canadian residents can take advantage of the Tax-Free Savings Account (TFSA). Any profits made within this tax free savings account are tax-free. While you can’t buy cryptocurrency directly in your TFSA, you can buy a Bitcoin Exchange Traded Fund (ETF) in your TFSA. These bitcoin ETFs track the price of Bitcoin and they are aimed at individuals who wish to invest in Bitcoin without having to deal with exchanges, wallets, and all the technical aspects.

Popular Canadian Bitcoin ETFs

They are the easiest way to invest in Bitcoin, but they also have high management fees and you won’t actually own the coins yourself. These are the ETFs that trade on the Toronto Stock Exchange that you can buy using Canadian dollars:

  • Purpose Bitcoin ETF (BTCC)
  • Evolve Bitcoin ETF (EBIT)
  • CI Galaxy Bitcoin ETF (BTCX)

Read here about the best Bitcoin ETFs to invest in Canada. There are even more crypto ETFs available for investing. 

How to Calculate Cryptocurrency Taxes in Canada?

Calculating crypto taxes in Canada

Trying to calculate crypto taxes can be confusing. If you buy crypto, then sell it at a higher price than you bought it, then that would count as a crypto capital gain. Note that only 50% of capital gains are taxable. This means that 50% of your gain is added to your income for the year and charged at your marginal rate. Remember, you will only pay tax on your gains, not your entire crypto investment. 

When calculating crypto gains, you are required to use an adjusted cost basis. For example, if you purchase crypto throughout the year at different prices, you need to total up all the prices you paid and work out the average. Once you have your average price, then you take your sell price, and work out whether you made a profit or loss. If you received crypto through crypto mining, the cost basis would be zero. 

If you sell your crypto for less than you bought it, that would count as a capital loss. Capital losses can reduce the total amount of capital gains tax you pay. If you don’t have any gains and you only have capital losses, you may carry that amount forward to offset capital gains you might have to pay in future tax years. 

Tax Treatment in Canada

The tax treatment for crypto taxes in Canada are confusing because there are so many use cases for crypto. You can use crypto as an investment, as a currency for spending, or as a source of passive income. Paying taxes on cryptocurrency in Canada doesn’t have to be a headache. Report crypto on your taxes easily using Koinly, a crypto tax calculator and software. I personally used this software for filing my 2022 report. 

With Koinly, you can easily import your trades via a CSV file, your crypto exchange’s API, or your crypto wallet’s public keys. Koinly supports over 17,000 cryptocurrencies, 50 wallets, 350 crypto exchanges (including the most popular crypto Exchanges for Canadians, e.g. BitBuy), 50 blockchains, and 11 services such as BlockFi and Nexo. 

You can see all your transactions in one place. Most importantly, you can see exactly how much you’ve invested, how much profit and loss you’ve made, and see your possible tax liabilities. You can easily report business income on your taxes once Koinly has calculated everything for you.

Koinly is fully compliant with Canadian taxation rules on crypto. It can generate the forms you need to complete your Canadian tax return and it supports many Canadian crypto exchanges. 

Final Word on Crypto Tax in Canada

In a nutshell, you do not need to report purchases of cryptocurrency if you simply purchase it and hold it. If you sell it, trade it for another crypto, spend it, or give it away as a gift, then you will need to report these transactions on your tax return. You will need to note the value in Canadian dollars at the time of the transaction. That’s why it’s so important to keep track of all your crypto transactions, so you can accurately report crypto on your taxes. Keep records for at least six years and include:

  • Dates of transactions
  • The value of the crypto in CAD at the time of the transaction
  • Receipts of purchase or transfers
  • Crypto wallet addresses
  • Any legal fees or accounting costs
  • Mining expenses such as hardware costs 

If you are not a certified accounting technician, the Koinly tool will be extremely helpful and make your life easier. A full list of records the CRA recommends keeping as well as all official government guidance on cryptocurrencies can be found here

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Author

Holly Chase first discovered Bitcoin in 2012 and has been a crypto enthusiast ever since. She has been writing about cryptocurrency and blockchain since she started working at a cryptocurrency exchange in 2020.
 
Holly has a Youtube channel, where she shares videos about crypto, DeFi, and passive income.