If you’ve bought and sold cryptocurrency in the last calendar year, it’s time to start thinking about the impact this may have on your income tax return. Whether you’ve made a profit or a loss trading cryptocurrency, you’ll need to declare it in your annual tax return.
In Canada, cryptocurrency is generally treated as a commodity, which means it is taxed as either income or a capital gain. It’s essential that you understand the tax consequences of your specific situation when it comes to buying, selling and trading crypto. In this guide, we look at the basics of cryptocurrency tax in Canada to help you learn what you need to do to keep the taxman happy.
The following is a summary of some important details regarding how the Canada Revenue Agency (CRA) handles cryptocurrency at the time of writing (17 July 2019). Cryptocurrency is a highly evolving space, and rules and laws are constantly changing over time.
We’re not tax experts, and general information such as that found in this guide is no substitute for professional advice. Consider your own situation and circumstances before relying on the information laid out here.
Visit the CRA’s guide to cryptocurrencies for more information or contact them directly at 1-800-267-6999.
Crypto tracking and tax reporting services
Price disclaimer: Last verified 17 June 2019. Prices are subject to change and should be used as a general guide only.
Cryptocurrency tax overview
We’ll cover a range of cryptocurrency tax topics in detail further down the page, but let’s start with a quick rundown of when cryptocurrency is taxable, and the two ways taxes are applied.
How is cryptocurrency taxed?
The profit made from cryptocurrency is determined in Canadian dollars when you exchange cryptocurrency for fiat or cryptocurrency, or you use it for goods and services.
For example if you buy or otherwise obtain 1 BTC when it’s worth $3,000, and then sell or spend it all when it’s worth $10,000, you’ve made a capital gain of $7,000. Capital gains have a tax obligation of 50%, meaning you’d have to pay tax on 50% of the gain.
Those profits (or losses) are what get taxed, and depending on the situation, they can get taxed in one of two different ways: as business income or capital gains. Before you proceed with filing your taxes, you will need to determine whether you are earning business income or capital gains.
According to the CRA, the following are common signs that you may have a business and therefore your crypto will be taxed as business income:
Your activities are for commercial reasons and run in a commercially viable way (ie. you look to make a profit in the short and/or long term).
You promote a product or a service.
You show that you’re looking to make a profit, even if it’s not in the short term.
You complete your business activities in a professional manner, such as preparing a business plan and acquiring capital assets or inventory.
You have repetitive or regular processes.
Some examples of cryptocurrency businesses include:
It should be noted that even if you don’t run a business, buying cryptocurrency with the intention of selling it for a profit may still be treated as business income. This is because it could be considered a business venture or could be considered as a trade business.
If your cryptocurrency activities do not fit into the business income category, the resulting profits or losses will most likely be considered capital gains (or losses).
Examples of capital gain (or loss) activities may include:
Buying cryptocurrency for yourself
Mining crypto as a hobby
Trading cryptocurrency casually
If you’ve made a profit from the sale or use of your cryptocurrency, you’ve realized a capital gain. When filing taxes, 50% of the capital gain is subject to tax and is called the taxable capital gain.
But what happens if you’ve had a capital loss? Any losses can only be offset against capital gains – you can’t use them to reduce income from other sources, such as your employment or other investment income. However, if you don’t have any capital gains to offset the losses, you can carry forward any capital losses to the next tax year or any of the preceding three years.
Cryptocurrency is treated as a commodity in Canada, which means it’s taxed as either income or a capital gain – it is not viewed by the CRA as a legal currency or investment. It’s essential that you understand the tax consequences of your specific situation when it comes to using and selling crypto.
When does tax apply?
Usually just possessing or holding a cryptocurrency is not taxable, however once you sell it, transfer it or give it away, tax usually applies. There could be tax consequences when you do any of the following:
Trade or exchange cryptocurrency, including exchanging one cryptocurrency for another
Convert cryptocurrency to fiat currency, such as Canadian dollars
Use cryptocurrency to buy goods or services
John’s crypto tax obligations
In August 2017, John discovered Bitcoin and the world of cryptocurrency. Believing that the world’s largest digital currency was due for a price increase very soon, John purchased three BTC at $5,300 each as a speculative investment.
By early December 2017, the price of bitcoin had risen to $16,000 and John decided to cash out his Bitcoin and convert them to Canadian dollars. His initial investment of $15,900 had grown to $48,000, a capital gain of $32,100. Of his total capital gain of $32,100, 50% of this amount will be subject to tax.
It’s also quite possible for someone to place several crypto-to-crypto trades each year without ever using any fiat currency – for example, you might exchange some of your Bitcoin holdings for Ethereum tokens and several other altcoins, without ever converting any of your funds back to Canadian dollars.
This is where barter transaction rules apply. Even trading from crypto-to-crypto means that any gains you’ve made are still subject to tax – even though you haven’t actually realized any profits in fiat currency yet. Since taxes must be submitted in Canadian dollars only, you must convert the value of the cryptocurrency into Canadian dollars and report it on your tax return as either business income (or loss) or capital gain (or loss).
With this in mind, you’ll need to keep records of all your crypto trades so you can calculate any capital gains or losses and include them on your tax return in Canadian dollars. Some crypto tax software, such as BearTax, can help you track your trades and generate capital gains reports, plus many of these tax programs offer integration with leading crypto exchanges to make things even easier.
In cases where it’s not possible to calculate the value of the cryptocurrency you received, the capital gain can be worked out by using the fair trade market value of the cryptocurrency you disposed of when the transaction occurred. Learn more about this below.
Determining your capital gain (or loss)
To work out your capital gain or loss, you’ll need to find out the value of the cryptocurrency in Canadian dollars at the time of the transaction. You’ll need to do this by calculating the fair trade market value.
Capital gains can be calculated by subtracting the amount you paid for a cryptocurrency from the amount you sold it for. The resulting figure forms part of your assessable income and needs to be declared on your tax return.
If you purchased crypto directly with Canadian dollars, or sold crypto for Canadian dollars, it’s easy to calculate purchase and sale prices – just remember to include brokerage fees in the total cost for each transaction.
However, if you purchased your crypto holdings using a widely-traded digital currency like BTC or ETH, you’ll need to note down the BTC or ETH price at the time of that trade. This is why it’s important to keep records of your transactions.
What if my cryptocurrency is lost or stolen?
If you lose your private key or your crypto holdings are stolen, you may be able to claim a capital loss. However, whether or not this is possible may depend on whether you lost the cryptocurrency, lost evidence of your cryptocurrency ownership or you lost a private key that cannot be replaced.
If an item can be replaced, it is not considered to be lost. But a lost private key is irreplaceable, so it may be possible to claim a capital loss by providing detailed evidence, including:
The dates when you acquired and lost the private key.
The public wallet address linked to the private key.
The total cost of acquiring the cryptocurrency that was later lost or stolen.
The cryptocurrency wallet balance when you lost the private key.
Proof that you actually owned the wallet (for example, transactions linked to your identity).
Possession of the hardware where the wallet is stored.
Transfers to the wallet from a digital currency exchange where you hold a verified account, or where your account is linked to your identity in some other way.
That said, there is no guarantee you can claim the cryptocurrency as a capital loss.
Using cryptocurrency for business transactions
Does your business accept cryptocurrency as payment for the goods or services it provides? If so, the value in Canadian dollars of the cryptocurrency you receive will need to be included as part of your ordinary income.
Special rules also apply if you pay an employee using cryptocurrency:
You’ll need to separate the cryptocurrency payment from their actual salary.
When reporting for tax purposes, you will need to report the value of the cryptocurrency (at the time) in Canadian dollars.
If you receive cryptocurrency as part of your income
If your employer pays you partly in cryptocurrency and partly in Canadian dollars, you will need to report both as income. Not only will you need to report the cryptocurrency payment as income, you will also need to charge GST/HST. You can also deduct any associated expenses and claim any available tax credits.
What records do I need to keep?
Regardless of whether you’re considering your personal or business tax obligations, it’s essential that you keep detailed records of your cryptocurrency transactions. These should include:
Date of the transactions.
Receipts of purchase or transfer of cryptocurrency.
Value of the cryptocurrency in Canadian dollars at the time of the transaction.
Digital wallet records and cryptocurrency addresses.
Description of the transaction.
Accounting and legal costs.
Software costs related to managing your taxes.
If you’re a miner, you should keep the following records:
Receipts for the purchase of cryptocurrency mining hardware.
Receipts to support your expenses and other records associated with the mining operation, such as power, mining pool fees, maintenance costs, etc.
How to understand your obligations and minimize your tax
There are several simple things you can do to gain a deeper understanding of your cryptocurrency tax obligations and to make sure you’re fully compliant with all CRA regulations, including:
Do your own research. Take a closer look at the CRA’s guide to the taxation rules on cryptocurrencies for more information on how your crypto transactions will be taxed. You can also contact the CRA and ask any questions that you may have.
Plan ahead. Consider your intentions as to how you will use cryptocurrency before you buy. For example, if you initially acquire BTC for everyday personal purchases but later decide to hold it to make a long-term profit, make sure you’re aware of the potential tax consequences.
Keep records. Keep track of your crypto transactions as they are completed. This will be much easier than searching for all the information you need come 30 April.
Think about deductions. Are you eligible to claim any deductions for expenses related to your crypto transactions, such as if you run a Bitcoin mining business?
Disclose, disclose, disclose. Don’t assume that transactions made with Bitcoin and other cryptocurrencies are untraceable – they’re not. And don’t even think about “forgetting” to disclose the details of your crypto transactions, as digital currency taxation is a hot topic this year and the penalties for non-disclosure are severe.
However, the most important step you can take to better understand cryptocurrency tax is to talk to an expert.
Getting help from a tax expert
Not only is cryptocurrency taxation complicated and confusing, it’s also in its early stages and is still evolving. While some people will have the knowledge to accurately report their crypto transactions themselves, many others – particularly those who have made substantial capital gains – will be better off getting help from an accountant or a registered tax agent.
However, before choosing an agent or accountant, make sure they have specialist knowledge regarding cryptocurrencies and tax. As this is such a new area of taxation, some professionals may not have the necessary knowledge to provide accurate advice.
One final word of warning: there’s still much we don’t know for certain about how the CRA will treat cryptocurrency. There are still plenty of kinks to be ironed out, so getting advice from an accountant or registered tax agent is the best way to make sure you don’t end up with a big migraine come tax time.
Cryptocurrency tax FAQs
If you have more than one type of cryptocurrency, for tax purposes you will need to treat each type of cryptocurrency as a separate digital asset. This means all types of coins must be valued separately. As an example, a Bitcoin is valued separately from Ethereum.
Yes. According to the CRA, when a taxable property or service is exchanged for cryptocurrency, the GST/HST that applies to the property or service is calculated based on the fair market value of the crypto at the time of the exchange. When calculating the fair market value, refer to your records or use a website that tracks the price history of coins. You’ll need to keep all of your records for at least four years after you file your taxes.
If your business accepts cryptocurrency as payment, the same applies for GST/HST – you’ll need to calculate the fair trade market value.
You can access historic price information from reputable websites that publish daily conversion rates for BTC/CAD, ETH/CAD etc. Your crypto exchange should also be able to provide you with details of your transaction history.
Yes. When you exchange one digital currency for another, the CRA classifies this as a form of bartering and it is therefore taxed. You’ll need to convert the value of the crypto into Canadian dollars and then report the resulting gain or loss as either business income (or loss) or a capital gain (or loss).
Not in Canada. While cryptocurrency can in some circumstances be classified as “like-kind property” under American tax law, it’s treated differently in Canada.
It’s possible that you may have tax reporting obligations and also have to pay tax in the country where the exchange is located, as well as in Canada. Speak to a cryptocurrency tax specialist for advice tailored to your situation.
This information should not be interpreted as an endorsement of cryptocurrency or any specific provider,
service or offering. It is not a recommendation to trade. Cryptocurrencies are speculative, complex and
involve significant risks – they are highly volatile and sensitive to secondary activity. Performance
is unpredictable and past performance is no guarantee of future performance. Consider your own
circumstances, and obtain your own advice, before relying on this information. You should also verify
the nature of any product or service (including its legal status and relevant regulatory requirements)
and consult the relevant Regulators' websites before making any decision. Finder, or the author, may
have holdings in the cryptocurrencies discussed.
Disclosure: At the time of writing, the author holds ADA, ICX, IOTA and XLM.
Emma Balmforth is a producer at Finder. She is passionate about helping people make financial decisions that will benefit them now and in the future. She has written for a variety of publications including World Nomads, Trek Effect and Uncharted. Emma has a degree in Business and Psychology from the University of Waterloo. She enjoys backpacking, reading and taking long hikes and road trips with her adventurous dog.
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