This article is part of TokenTax's Cryptocurrency Tax Guide
How cryptocurrency is taxed in Canada
The Canada Revenue Agency (CRA) has issued guidance that Canadian taxpayers are liable for taxes on crypto. Furthermore, crypt is not considered to be legal tender currency; rather, it is treated as a commodity.
Cryptocurrency is taxed in Canada as either capital gains or as income tax, depending on whether your activity with cryptocurrency is considered to be as a business or not. 100% of business income is taxable, whereas only 50% of capital gains are taxable. If you're unsure whether you are operating on a personal or a business level, consult with a tax professional.
What crypto transactions are taxable in Canada?
The CRA states that a disposition of cryptocurrency results in taxable consequences. These dispositions, or taxable events, are as follows:
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
How to file crypto taxes for the CRA
If you treat your crypto as capital gains / losses (i.e. not as business income), you file capital gains on the Schedule 3: Capital Gains (or Losses). Otherwise, if you're reporting your crypto gains as business income, you'll report via the T2125 Statement of Business or Professional Activities.
Adjusted cost basis accounting for the CRA
Canadian crypto taxpayers are required to use the adjusted cost basis, or average cost, for capital gains 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.
Do you file as business income or capital gains?
You must determine whether your income from disposing of cryptocurrency is a business income or capital gain. The CRA describes signs of business activity as when you carry on activity for commercial reasons, with business-level planning, and execution, with intention to show a profit.
In particular, they note that if you are buying crypto with the intention to sell it as a profit, it may be business income. Examples they provide include “examples of cryptocurrency businesses” of “cryptocurrency mining / cryptocurrency trading.” Be sure to consult with a tax professional as to what your situation is.
With capital gains for personal / hobbyist activity, only half of the capital gain (the “taxable capital gain”) is subject to tax. Capital losses can only offset other capital gains and cannot be used to reduce income. If you don’t have any gains to offset during the year or from the preceding three years, you can carry forward these capital losses to offset capital gains.
Crypto mining tax in Canada
The CRA defines mining as using computers to confirm cryptocurrency transactions via mathematical problems — the typical proof of work mining / block confirmation mechanism.
They acknowledge that mining can be either a personal activity, i.e. a hobby, or a business activity, depending on the case. Again, you should consult with a tax professional as to what your situation falls under.