As cryptocurrencies gain traction, it’s important to grasp the ins and outs of taxation for crypto investors. Think of this as a high-level look at crypto-investing and tax implications on topics like obligations, regulations, and best practices for reporting your crypto-related transactions.
If you really want to learn about crypto tax in Canada, however, it’s always best to speak with a licensed professional – especially if you are or are thinking about making a significant investment.
In Canada, cryptocurrencies are considered commodities under the Income Tax Act, which means that any gains or losses resulting from crypto transactions are subject to taxation.
Taxable Crypto Events
The following are common events that trigger tax obligations in the crypto space:
- a) Crypto-to-Fiat Transactions. When you convert your cryptocurrencies to Canadian dollars or any other fiat currency, this is a taxable event. The difference between the value of your crypto when you acquired it and its value at the time of conversion determines your taxable gain or loss.
- b) Crypto-to-Crypto Transactions. Swapping one crypto for another? That’s also a taxable event. The taxable gain or loss is calculated based on the fair market value of the crypto at the time of the transaction.
- c) Mining and Staking. If you’re into mining or staking activities, the income you generate is subject to taxation. The value of the cryptocurrency you receive when mining or staking counts as taxable income.
- d) Initial Coin Offerings (ICOs). How these are taxed depends on factors like whether the tokens you purchased are considered securities or not.
Here are a few of the common forms used for reporting your crypto transactions accurately:
- T1135 Foreign Income Verification Statement. If the total cost of your specified foreign property (including crypto on foreign exchanges) surpasses CAD 100,000 during the year, you must report it using Form T1135.
- Schedule 3. When reporting capital gains or losses from selling or exchanging crypto, you’ll need to complete a Schedule 3.
- Business Income. If you’re a crypto trader running a business, you’ll have to report your income and expenses using Form T2125.
Tax Treatment for Businesses
For businesses accepting crypto payments, there are specific guidelines to follow. The CRA treats crypto transactions similar to barter transactions. You record the value of the crypto at the time of the transaction as revenue, and any subsequent changes in value result in a gain or loss.
Keeping Accurate Records
To stay on top of things and ensure compliance, keep detailed records of all your crypto transactions. Track the acquisition date, fair market value, and any expenses related to buying or selling cryptocurrencies. You’ll rely on them heavily at tax time.
Seeking Professional Guidance
Crypto taxes can be a bit tricky, so it’s a good idea to seek professional help. Connect with a qualified tax professional who specializes in crypto taxation. They’ll provide tailored guidance, ensuring you meet your obligations and stay on the right side of the taxman.
The Bottom Line
As cryptocurrencies continue to revolutionize finance, it’s essential to navigate the tax landscape responsibly.
By knowing the classification of cryptocurrencies, understanding taxable events, meeting reporting requirements, and seeking professional advice when needed, you can stay compliant with the law while your money works for you.