How Are Crypto Losses Taxed in Canada? (CRA Rules 2024)
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Crypto in Canada is taxed as property and gains subject to taxes as business income, 100% of which is taxable, or as capital gains, 50% of which is taxable.
Canadian taxpayers can use up to 50% of capital losses to offset capital gains but must realize losses through a sale, trade, or purchase to claim benefits.
How is crypto taxed in Canada?
The Canada Revenue Agency considers crypto to be property, and any gains from them are subject to taxes either as business income or capital gains. In this regard, 50% of the capital gains are taxable, while 100% of the business income is taxable.
It’s therefore essential to determine whether your crypto gains fall under the category of capital gains or business income to understand the applicable tax implications.
Do you have to report crypto losses to the CRA?
Yes, you must report capital losses to the CRA. Additionally you may benefit from a lower tax bill by reporting losses.
“Regardless of whether or not the sale of a capital property results in a capital gain or loss, you have to file an income tax and benefit return to report the transaction (even if you do not have to pay tax).”
Canadian taxpayers must report their crypto capital gains or losses on Schedule 3. Read further to learn how to claim crypto losses in Canada.
Can crypto losses reduce my tax bill?
Canadian crypto taxpayers can use crypto losses to offset capital gains from stocks, cryptocurrencies, and other assets. If you experience a net loss within a tax year, you can use it to offset capital gains in subsequent tax years or carry it back to offset gains in the previous three tax years.
Just as 50% of cryptocurrency capital gains are subject to taxation, 50% of the value of cryptocurrency losses can be utilized to offset gains. It is important to understand how cryptocurrency losses are taxed. Such losses cannot be used to offset regular income for the year, for example.
To take advantage of the tax benefits, you must "realize" your loss, which involves selling your cryptocurrency, trading it for another cryptocurrency, or using it to make a purchase. You cannot claim unrealized losses on your tax return.
The Superficial Loss Rule explained
Canada’s Superficial Loss Rule is similar to the wash sale rule in the United States (although there is no specific crypto wash sale rule in the US, as of yet). When you sell an investment and incur a loss, repurchasing the same property within a specific time frame can lead to a superficial loss in certain circumstances.
A superficial loss per the CRA means Canadian taxpayers cannot claim certain losses for tax purposes, and therefore, they cannot be used to offset any capital gains. Instead, the amount of the loss is added to the adjusted cost base (ACB) of the repurchased identical property. To determine if the superficial loss rules apply, you must meet the following two conditions:
Condition 1: Within the period starting 30 days before and ending 30 days after the settlement date of the sale (when you dispose of the property), either you or a person "affiliated" with you acquires the same property that was sold at a loss.
Condition 2: By the end of the 61-day period (specifically, on the 30th day after the settlement date of the sale), either you or an affiliated person must not own or have a right to acquire the identical property.
Reporting your crypto losses on your tax return
Briefly, here is how to claim crypto losses in Canada. Canadian taxpayers must report crypto capital losses alongside capital gains on Schedule 3. Those who want to carry their current year’s net losses into a prior tax year can use Form T1A - Request for Loss Carryback.
If you wish to carry over a previous year’s net capital loss into the current year, do so on line 25300 of your tax return.
Tracking capital gains and losses in Canada
To determine your capital gain or loss, you must know and understand the following three factors:
Proceeds of Disposition: This refers to the amount you have received or will receive for selling your units or shares.
Adjusted Cost Base (ACB): The ACB encompasses the original cost of your units or shares, along with any expenses incurred during their acquisition, such as commissions, legal fees, and deducting returns of capital on your units or shares.
Outlays and Expenses on Sale: These are the costs incurred when you’ve sold your units or shares, including redemption fees and commissions.
How TokenTax can help
TokenTax can assist Canadian taxpayers with their crypto taxes by providing comprehensive services and tools tailored to their needs. Here are five ways we can help:
Data Import: TokenTax seamlessly syncs with all your crypto wallets and accounts, reducing the need for manual data entry. It consolidates all your data in one place, making it easy for you to analyze and manage your transactions.
API and Wallet Integrations: TokenTax supports various integrations, including DeFi and NFT support, as well as margin and futures trading support. This ensures that all your crypto activities are accounted for accurately.
Tax Reports: TokenTax allows you to preview your tax liability in real-time, so you can stay prepared. Our platform provides comprehensive tax reports with different tax liability calculations, tax loss harvesting dashboards, income reports from mining and staking, Ethereum gas fee reports, and custom enterprise reports.
Crypto Tax Forms: The software automatically generates all the necessary tax forms you need for filing, such as Form 8949, Schedule D, FBAR, and international forms. It even integrates with TurboTax if you prefer to file through that platform.
Reconciliation: For investors with more complex accounting needs, TokenTax offers advanced reconciliation services provided by tax professionals with expertise in cryptocurrencies. This service covers situations involving missing cost basis or messy data, high transaction volumes, and cross-chain transactions.
If you're a Canadian taxpayer, you can explore TokenTax's plans and pricing to find the best solution for your crypto tax requirements. From data import to tax filing, TokenTax ensures that all your crypto tax needs are covered, making the process efficient and accurate.
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Frequently asked questions about crypto losses in Canada
Here are answers to frequently asked questions, including can you claim crypto losses in Canada and how to claim crypto losses in Canada.
Can you write off crypto losses in Canada?
Crypto losses in Canada can be used to offset capital gains from stocks, cryptocurrencies, and other assets. 50% of the value of losses during a given tax year can be used to offset capital gains in subsequent tax years or carry it back to offset gains in the previous three tax years.
Are investment losses tax deductible in Canada?
Yes. Typically when you experience an allowable capital loss within a tax year, you must first offset it against any taxable capital gains you have for that same year. If there is still a loss remaining after this step, it becomes part of your net capital loss calculation for that year. This net capital loss can then be utilized to decrease your taxable capital gains in either any of the preceding three years or any future year.
What is the wash rule in Canada?
In Canada, the Superficial Loss Rule is similar to the wash sale rule in the United States. When you sell an investment and incur a loss, repurchasing the same property within a specific time frame can lead to a superficial loss under certain conditions.
What is the deadline for tax-loss selling in Canada?
In 2023, the last day for tax-loss selling was December 27. Stock trades take two days to settle, so the tax-loss selling deadline for 2024 will again be December 27, two days before the final business day of the year.
Can you claim crypto losses in Canada?
Yes, you may be able to claim crypto losses in Canada. Canadian taxpayers can typically use crypto losses to offset capital gains from various sources, including stocks and cryptocurrencies. Fifty percent of the value of losses incurred during a tax year can be used to offset capital gains in subsequent years or carried back to offset gains in the previous three tax years.
What is Canada's crypto status?
In Canada, cryptocurrencies are considered property by the Canada Revenue Agency (CRA). Any gains from crypto transactions are subject to taxes, either as business income or capital gains. The tax implications depend on whether the gains are classified as capital gains or business income.
What is the Canadian law on crypto?
The Canadian law on crypto recognizes cryptocurrencies as property, and transactions involving them are subject to taxation. The Canada Revenue Agency (CRA) considers 50% of capital gains taxable, while 100% of business income is taxable. It's crucial to determine whether crypto gains fall under capital gains or business income to understand the applicable tax implications.
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