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, how to calculate crypto taxes and more. Read on for our ultimate guide to paying taxes on cryptocurrency 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 treated either as business income or capital gains.
What Crypto Transactions Are Taxable In Canada?
Any sale or transfer of cryptocurrency is called a disposition. 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 Canadian Revenue Agency. If you sell it, you will need to report it on your tax return. You will pay capital gains tax or business income on any profits you have made.
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 disposition. Purchasing a new coin during its ICO with another coin also counts as a disposition.
Using crypto to pay for goods and services
You might have to pay tax 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 most likely need to report it as business income. The person spending the crypto might 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.
Giving Crypto As A Gift
Donating or giving someone crypto counts as a disposition of property. The receiver does not need to pay tax but the giver might. If the value of the crypto increased between the time you bought it and gave it away, that would count as a capital gain. If it lost value in that time, that would be a capital loss.
Is Crypto Taxed as Business or Personal Income 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?
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 them 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. So how do you determine if you should report cryptocurrency on your taxes as business income or capital gains?
Report crypto dispositions on your taxes as business income if you:
- Operate a commercial business that involves crypto e.g. running an exchange or ATM
- 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
If you mine crypto as a hobby and keep it, you don’t need to report this activity to the CRA. However, if you eventually sell your crypto, you will need to report it as capital gains. If you mine crypto and sell it for a profit regularly, this counts as business income.
Report crypto dispositions as a capital gain if you treat your crypto purchases as investments and you don’t operate any kind of commercial business involving cryptocurrency.
The CRA has not released specific guidance on staking cryptocurrency but is generally treated much like interest or dividends. You will need to report it as income on your tax return and you will be charged at your marginal tax rate. If you stop staking and then sell your crypto, you will still need to pay capital gains tax on profits as outlined above.
How is GST/HST Calculated On Cryptocurrency 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 that 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 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. 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)
You can easily purchase shares in these ETFs with either Wealthsimple or Questrade.
How to Calculate Cryptocurrency 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 capital 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 mined crypto, 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 the following year.
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 2020 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 tax liabilities.
Koinly is fully compliant with Canadian regulations 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 or accounting costs
- Mining expenses such as hardware costs
A full list of records the CRA recommends keeping as well as all official government guidance on cryptocurrencies can be found here.