Crypto Taxes in Canada: The Ultimate Guide
Cryptocurrencies have been around for a while, but it was only recently that they’ve become popular enough for the average person to invest in them. If you're one of the many Canadians who have decided to diversify your investment portfolio, you need to be aware of the tax implications.
In this guide, we'll go over everything you need to know about crypto tax in Canada. We'll cover what is taxable, how to report your income, and more. So if you're ready to learn about Crypto Tax 101, keep reading!
CRA Stance on Cryptocurrency
The Canada Revenue Agency has a clear stance on cryptocurrencies. These digital assets are considered a commodity for taxation purposes. While cryptocurrencies are mainly used as currency, the Canadian government doesn’t recognize them as legal tender. If you are buying or trading cryptocurrencies, simply treat them as any other asset that would be covered under capital gains.
For instance, when you’re selling bonds, stocks, real estate, and precious metals, you track if you made a profit or loss on the trade. It’s the same for assets like Bitcoin, which fall under Canada’s crypto tax legislation. If you sell Bitcoin at a profit, only those gains are taxed.
Cryptocurrencies can also be treated as business income; in those instances, they are subject to the same taxes as your income. If you are using cryptocurrency as a payment method, the government also recognizes this exchange as a taxable event.
The exchange of goods and services without the use of legal currency is regarded as barter. Since the CRA considers crypto a commodity, any trade involving cryptocurrencies is barter, but it still falls under taxable events.
Business Income Tax
Canadians also have the option of reporting their cryptocurrencies as business income. The CRA clearly defines what kind of activity it takes to consider cryptocurrencies as business income:
- The intention of making a profit, even if it’s not feasible in the short term;
- Promotion of goods or services;
- Business-related activities, such as creating a business plan, acquiring assets or inventory;
- Engaging in commercially viable activities with the intention of making a profit.
When it comes to the classification applied by the CRA, crypto-recognized businesses include online cryptocurrency exchanges, crypto-mining operations, ATMs, and asset trading. If you have a new business that’s in the initial stages of development, you may be eligible to report such profits in the next fiscal year. The best practice is to consult with tax accounting experts on your financial obligations towards the state if you are not certain.
Furthermore, the Interpretation Bulletin IT-479R stipulates in paragraphs 9 through 32 how transactions with securities can be considered income and if they fall under the capital gains tax. Keep in mind there’s a difference between Canadian and non-Canadian securities under which cryptocurrencies are included.
When Taxes Apply to Crypto
Like with most assets that are eligible for capital gains tax, you don’t have to pay anything if you just have crypto in your possession. Any disposition of cryptocurrency, such as giving it away, selling it, or making a transfer, can potentially be a taxable event. Remember that in Canada, crypto taxes may be incurred if you do any of the following:
- Sell cryptocurrencies;
- Give crypto to another party as a gift;
- Trade one cryptocurrency for another;
- Convert crypto to fiat currency;
- Buy goods or services with digital currencies.
Cryptocurrency as a Capital Gain
So, when do you have to pay capital gains tax on Bitcoin or other coins you sell? First, it’s important for the transaction not to be regarded as business income, as we already discussed. You only need to pay taxes if you sell your coins at a profit.
Such gains are included in the income for that year. However, only 50% of the profit is a taxable capital gain. Cryptocurrency taxes in Canada don’t allow taxpayers to offset their employment income by losses incurred by trades to reduce the amount of taxes that need to be paid. Even so, capital losses can offset any capital gains made in the same year, the preceding three-year period, or the following years.
Capital gains tax applies to 50% of the amount of profit you make, and the same goes for capital losses. You can only offset gains by 50% of the losses you made.
Taxable and Non-Taxable Actions With Crypto
As crypto is still a relatively new phenomenon, there is a range of situations that the CRA has to define in connection with these currencies. Cryptocurrency tax in Canada can apply to some situations you didn’t expect, so it’s best to be informed.
If you are simply holding crypto coins, you will not be taxed on them. This is because there is no profit still made to be taxed. However, things get a bit complicated if you are mining crypto or trading it on an exchange.
No taxes are added to the price of cryptocurrencies at the time of purchase. This doesn't mean you should relax and not keep an accurate log of your transactions, though. You will need to calculate your capital gains, which are based on your initial investment, so you should have an exact record of the time of purchase, the price, and the amount of cryptocurrency you bought.
Most cryptocurrency exchanges that accept Canadians will log all your transactions, but it can be helpful for you to ensure you have backed them up.
If you decide to sell cryptocurrencies for fiat (Canadian dollars, US dollars, or any other legal tender), you will be subject to capital gains tax. The taxable amount is calculated based on the price at the time of purchase and sale.
Transferring Crypto Between Wallets
There is no cryptocurrency taxation in Canada if you transfer assets between the wallets you own. You are simply moving your crypto around and not selling it or earning any income.
Nonetheless, if you are transferring crypto to someone else, this may be considered a sale, and you will be subject to a capital gains tax on the transaction. This also applies to giving crypto as a gift and for services rendered.
Keeping a record of transactions, wallet addresses, and crypto exchange accounts will help you get a clear picture of the cost basis and the date of acquisition, which is essential for calculating capital gain.
Trading One Crypto for Another
Canada’s cryptocurrency tax legislation considers the exchange of one cryptocurrency for another as a taxable event. The gains or losses from the trade will be calculated based on the original purchase price of the crypto being traded.
Let’s say you originally bought Bitcoin for $1,000, and then it rose in value tenfold. Then you bought 5 ETH for $10,000 worth of BTC. You would have to pay capital gains for profits made with Bitcoin as if you were leaving your position and selling it for fiat currency. The capital gains tax would apply to 50% of the $9,000 profits made with BTC, meaning $4,500 is taxable in this instance.
Purchasing With Crypto
Trading crypto for goods and services is treated similarly to selling a security for fiat currency. You will be subject to capital gains tax on the crypto you traded based on its original purchase price, as crypto isn’t considered legal tender.
Income From Mining
Mining Bitcoin for profit in Canada is generally considered taxable income. This also applies to other cryptocurrencies, and the amount of tax you pay depends on whether your mining activity is considered a business or a hobby. If it's a hobby, you will only be taxed on the net profits made.
If it is considered a business, you will be taxed on the gross income minus any expenses incurred to run the operation. Any costs associated with mining, such as electricity and hardware, can be deducted from your gross income to determine how much your taxable profit is. Thanks to the deductibles that can significantly lower your taxable amount, it might be preferable to mine as a professional.
Reporting Crypto as Business Income
Now that we’ve determined what is considered business income and how crypto tax in Canada functions, you need to include it on your company’s tax form. The T-2125 form, or Statement of Business or Professional Activities, is a document you must fill out if you’re reporting business or professional income. This form is also used if you’re a sole proprietor, a partner in a partnership, or an independent contractor.
But keep in mind that if you file the T-2125 when it doesn’t apply to you, for instance, because your crypto activity falls under hobby income, the CRA could reassess your tax return and impose a penalty.
The advantage of having a crypto-based business is that you can deduct business expenses such as an internet connection, various subscriptions, and other related expenses. If your business experiences a bad year and your bottom line ends up negative, you have a non-capital loss that can be deducted from other sources of income, lowering your taxes.
Crypto and Bitcoin tax in Canada makes it easier for businesses to deal with the volatility of the cryptocurrency market. Specifically, you can carry non-capital losses to reduce future taxable income for up to 20 years or combine them with previously unapplied losses.
Superficial Loss Rule and Crypto
The superficial loss rule is important if you’re trading in cryptocurrency because it has the potential to create taxable events where there might not have been any.
The rule disallows taxpayers from claiming a capital loss on the sale of securities when the same or substantially identical securities are acquired within 30 days before or after the sale.
In practical terms, this means that if you sell a cryptocurrency at a loss and then buy it back within 30 days, you cannot claim the capital loss on your taxes. The reason for this is to prevent taxpayers from simply selling securities at a loss to claim the tax deduction.
This can be problematic in the case of cryptocurrency because the prices of coins can fluctuate so rapidly that it may not be possible to avoid superficial loss rules. It’s important to speak with a tax expert to ensure you don’t accidentally create a taxable event.
Reporting Transactions With Cryptocurrency: Canadian Tax Information
We’ve already mentioned that you need to keep an accurate record of all transactions you make with digital currencies. Most cryptocurrencies use a public ledger to record transactions; therefore, it’s easy to keep track of incoming and outgoing crypto transfers.
Once your private information is associated with a wallet address, it’s relatively straightforward to identify if you withheld information from the CRA.
To avoid any misunderstandings and present your information clearly in the 5000-S3 Schedule 3 - Capital Gains (or Losses) form, collect the following information on your transactions:
- Exact date and time of each transaction;
- Market value of coins you bought or sold;
- Number of coins included in the transaction;
- Wallet address or addresses you used in the transaction;
- Recipient’s address;
- Any information from a crypto exchange (if used);
- Any expenses that may apply (mining fee, legal fee, etc.).
Calculating Crypto Tax in Canada
Even though you are paying capital gains taxes on your cryptocurrency transactions, the rate will still depend on your taxable income bracket. The table below reflects the federal tax rates in 2023.
|Tax Rate||Taxable Income|
|15%||For first $50,197|
|20.5%||On income between $50,195 and $100,392|
|26%||On income between $100,392 and $155,625|
|29%||On income between $155,625 and $221,708|
|33%||On income over $221,708|
Let’s examine how Bitcoin taxation in Canada works when an investor needs to pay capital gains taxes.
- The investor bought 5 BTC at $1,900 in 2017 for a total value of $9,500.
- The investor then decided to sell BTC in November 2021, almost at its peak. They got a price of $64,000 per BTC, for a total value of $320,000.
- This is a profit of $310,500 ($320,000 minus the initial investment of $9,500).
- The taxable amount is $155,250, which is 50% of the total amount.
- The investor has a taxable income for 2022 of $54,000 plus $155,250, for a total of $209,250.
- The income is taxed at a rate of up to 29% since the income is not over $221,708.
- The total tax is: $50,197 x 0.15 + $50,195 x 0.205 + $55,233 x 0.26 + $53,625 x 0.29 = $31,388.
- After Bitcoin taxation per Canada’s laws and regulations, the investor is left with a decent amount of money for the year 2022 at $333,113.
Remember, depending on which territory of Canada you are living in, additional tax rates may apply to your BTC profits. This example is here to show you an ideal situation from the perspective of a Canadian Bitcoin investor before you get into provincial or territorial tax rates.
We’ve analyzed how most cryptocurrencies you can invest in will be handled. However, with projects like Ethereum, we have access to decentralized finances (DeFi), which are changing how the industry works and, therefore, how the crypto will be handled by the CRA.
There are still no clear regulations in place that would cover staking crypto. Currently, it’s reasonable to assume that Canada’s tax on cryptocurrency earned through staking is handled in the same manner as mining. It may be considered either business income or capital gains.
Saving cryptocurrencies on an online platform or providing liquidity produces the same results as staking. Therefore, it will likely be processed the same way. Until clear regulations are established, the best course of action is to consult with a financial advisor who specializes in crypto before you file your taxes.
Taxes on Stablecoins
Buying stablecoins and exchanging them for fiat currency is still considered a taxable event. However, since the value is directly proportional to the fiat currencies the crypto is tied to, these will most likely be minuscule taxable events.
Taxes on NFTs
Canadian crypto tax laws have to keep up with the cryptocurrency industry, but there are still some aspects not covered by the legislation. This especially pertains to NFTs.
The NFT industry has exploded in recent years, but the legislature directly referring to NFTs is lacking. Thankfully, rules for crypto as a digital asset class can be applied to NFTs. If we treat NFTs as capital property, we can safely assume that the same taxes apply in this situation.
The act of creating an NFT is called minting. The process creates a digital product, and selling it would qualify as business income.
Other actions such as selling, swapping for another NFT, gifting, or buying it with crypto are also actions subject to capital gains tax.
How to Cash Out Crypto Without Paying Taxes in Canada
Every Canadian citizen must pay taxes on cryptocurrencies, and tax evasion can have serious consequences. As an individual, you are required by law to include any taxable transactions with cryptocurrencies in your annual taxes. The CRA also requires cryptocurrency exchanges with Canadian users to automatically report any transactions that surpass $10,000.
Reducing Your Crypto Taxes
It’s not possible to avoid paying taxes on crypto in Canada unless you change your place of residence to another country. Nevertheless, most countries are implementing some kind of tax regulation on cryptocurrencies.
The good news is that there are some tactics you can resort to if you are using platforms that trade stocks, ETFs, equities, and other capital assets. Many Canadians have been doing so for years and have made their savings work for them, and have found effective ways to reduce their annual taxes.
In Canada, tax on cryptocurrency can also be reduced through a process called tax-loss harvesting. The basic principle behind it is to offset any capital gains you’ve made with capital losses. This way, you can reduce your taxable income and, as a result, the taxes you have to pay.
The process of tax-loss harvesting is quite simple. All you have to do is sell those assets that are underperforming anyway and sell them at a loss. This way, you will offset any gains made with other assets and reduce your taxes.
Another way to look at it is that you are selling losing investments to invest in better-performing ones. In the end, you will have a more diverse and well-rounded portfolio, and you will also save on taxes.
Keep in mind that tax-loss harvesting can only be used to offset capital gains. If you only have business income from cryptocurrencies, this method will not work.
Making Donations to Charity
Crypto capital gains in Canada can be offset by making a donation to a charitable organization. The good thing about this method is that you don’t have to sell your crypto assets to do it. You can simply donate them directly to the charity of your choice.
All you have to do is find a charity that accepts cryptocurrency donations and send them the coins you want to donate. The organization will then issue you a receipt, which you can use to offset your taxes.
Donating to charity is a great way to reduce your taxes while helping a cause you believe in. It’s a win-win situation for everyone involved.
Carry Over Losses
Canada's taxes on cryptocurrency allow taxpayers to carry over losses to offset gains in the future. This is a great way to save on taxes in the long run, especially if you are confident that the price of the assets you hold will go up in the upcoming years.
Explore Other Tax Benefits
There may be some other tax benefits you are eligible for because of your family situation or any kind of special status you are unaware of. The Canada Child Benefit (CCB) program is one such example for families that have underage children.
The main benefit of having taxes on crypto in Canada is the regulated environment, which is safe for investors. As a result, there aren’t many situations that could potentially expose you to liability.
When it comes to paying taxes on cryptocurrency, the most important thing is to stay up to date with the latest changes. Tax laws are constantly being amended, and in the industry, which is also rapidly evolving, it can sometimes seem like a difficult task.
If you are ever in doubt, it’s always best to seek professional help. There are many accountants and tax lawyers who specialize in cryptocurrency taxes and can help you with any questions you may have.
Paying taxes on crypto doesn’t have to be a daunting task. With a little bit of planning and preparation, you can ensure that you are compliant with the law and that you are taking advantage of all the available tax benefits.
How much are you taxed on crypto in Canada?
If you sell crypto in Canada, you will be taxed on any capital gains. The tax rate depends on your other sources of income. If you are receiving cryptocurrency as payment for your work or business, you will have to pay income tax on the amount you received.
How do I avoid crypto taxes in Canada?
Paying taxes on cryptocurrency investment in Canada is mandatory. The only way to pay lower taxes is through loss harvesting, giving away crypto to charities, or seeing if you are eligible for some kind of tax break.
Is crypto investment taxable in Canada?
Buying cryptocurrency in Canada has tax obligations for investors. While the act of just buying a cryptocurrency isn’t a taxable event, the act of changing it for another cryptocurrency, buying goods or services, giving it away as a gift, and some other actions will require you to pay capital gains.
How much tax do I pay on crypto?
The crypto tax in Canada directly depends on your income, capital gains, capital losses, potential deductibles, and your state of residence. Generally, you only have to pay capital gains tax on 50% of the profits made with capital assets, but the tax on the total amount will directly depend on how much you are earning annually.
I have always thought of myself as a writer, but I began my career as a data operator with a large fintech firm. This position proved invaluable for learning how banks and other financial institutions operate. Daily correspondence with banking experts gave me insight into the systems and policies that power the economy. When I got the chance to translate my experience into words, I gladly joined the smart, enthusiastic Fortunly team.
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