Guide to Crypto Taxes in Canada
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The Canada Revenue Agency (CRA) treats cryptocurrency as a property, taxed either as business income or capital gains. Establishing whether or not your transactions are part of a business is very important: while 50% of capital gains are taxable, 100% of business income is taxable. In this guide, we outline how both categories are reported and taxed.
Which crypto transactions are taxable in Canada?
All of the following are crypto taxable events:
Selling crypto for fiat, i.e. CAD
Trading crypto for crypto
Using crypto to buy goods or services
Making a sale or gift of crypto
Any other disposition of crypto
Earnings from crypto mining and staking are also taxable, most often as business income.
Business income or personal income?
You must determine whether your income from disposing of cryptocurrency is a business income or capital gain. The CRA gives the following as indicative of a business:
Activities performed for commercial reasons
Business-level planning (business plan, capital assets or inventory)
Promotion of a product
The intention to make a profit
In particular, they note that if you are buying crypto with the intention to sell it for profit, it may be business income. They give crypto mining as an example of a business. Be sure to consult with a tax professional about your situation.
Tax on personal crypto transactions
Selling, trading, or swapping crypto: Capital gains
If capital gains are from personal / hobbyist activity, only half of the capital gain (the “taxable capital gain”) is subject to tax. You are taxed at the same rate (your ordinary income tax rate) regardless of how long you held the asset. Capital gains are reported on the Schedule 3: Capital Gains (or Losses).
Canadian capital gains example
You buy $10,000 of BTC.
You later sell it for $14,000.
You will report a $4,000 gain but only be liable for taxes on half of your profit ($2,000).
Gifts: Capital gains
In Canada, giving capital property as a gift can result in a capital gain or loss.
Using crypto to purchase goods or services: Capital gains
Canada considers using crypto to purchase good or services to be a barter transaction. As such, when someone receives goods or services in exchange for crypto, they will have a capital gain or loss on the spent asset's change in value since they acquired it.
Capital losses can only offset other capital gains and cannot be used to reduce income. If you have more losses than gains from the current tax year, losses you can offset gains from the previous three years. If you still don’t have enough capital gains to offset, you can carry forward losses to offset gains in subsequent years. Losses are reported on the Schedule 3.
Canadian capital losses example
In 2021, you realize $4,000 in capital gains.
In 2022, you have no gains, only a $5,000 capital loss on DOGE.
With no gains in the current tax year, you use $4,000 to offset your capital gains from 2021.
You can then carry forward $1,000 of losses for future tax years.
For example: In the second year of your crypto hobby, you sell DOGE for a $5,000 capital loss. With no gains in the current tax year, you use $2,000 to offset your capital gains from the year before. You can then carry forward $3,000 of losses for future tax years.
Federal individual income tax brackets (2022 tax year)
|Federal income tax bands (CAD)||Tax rate|
|next $50,195 (income over $50,197 up to $100,392)||20.5%|
|next $55,233 (income over $100,392 up to $155,625)||26%|
|next $66,083 (income over $155,625 up to $221,708)||29%|
|income over $221,708||33%|
Adjusted cost basis accounting
Canadian individual crypto taxpayers are required to use the average cost accounting method for capital gains tax calculations. More specifically, the CRA states that the ACB is the cost of property, and that in the case of identical properties, you use the average cost of each property to determine your adjusted cost basis.
For example, if you have bought BTC at various prices, and you later sell this BTC, your cost basis will be the average cost of acquisition of those BTC purchases. This average cost basis is pooled per crypto asset, so each cryptocurrency will have its average cost basis.
Tax on business crypto earnings
Business crypto transactions are subject to income tax, not capital gains tax. That means that 100% of profit is subject to taxation. Business income is reported on Form T2125.
Day trading: Business income
Example: You derive the majority of your income from cryptocurrency day trading. In the last tax year, you sold $400,000 worth of crypto for $100,000 of profit. Your full $100,000 profit would be subject to income tax.
Mining and staking: Business income (usually)
The CRA acknowledges that crypto mining or staking can be either a personal activity, i.e. a hobby, or a business activity and evaluates cases on an individual basis. However, the CRA has indicated that it considers most mining and staking operations to be business activities and subject to business income tax.
A tax professional can help you determine how your mining or staking income should be classified.
Federal corporate income tax rates
The corporate income tax is 38% of taxable income; however, after a federal tax abatement for income earned within Canada, it is 28%.
Some types of businesses receive additional preferential tax treatment. For example, small businesses are taxed at 9%.
For businesses that do not receive other preferential tax treatment, there is a general tax reduction that brings the rate to 13%.
However, although provinces use the federal rate as a guide, they may change the maximum rate; for example, while the maximum rate on Prince Edward Island is 16%, in Ontario, it is only 11.5%.
Valuing cryptocurrency as inventory
If cryptocurrency is considered inventory for your business, Canada requires you to value it consistently each year. The CRA describes the following two methods of inventory valuation:
Value each item in inventory at its cost when acquired or at its current FMV, whichever is lower
Value the entire inventory at FMV at the end of each year
However, Canada requires that inventory involved in an “adventure or concern in the nature of trade” must be valued at cost. For more guidance on how to value cryptocurrency inventory, contact a crypto tax specialist.
Learn more about crypto taxes in other countries in our Crypto Tax Guide.
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Last reviewed by Zac McClure, MBA on December 28, 2022 · Sources