Canada Crypto Tax Guide
Canada Crypto Tax Guide
Under local law, cryptocurrency is a digital representation of value that is not considered a legal tender. It is a digital asset that can be used to buy and sell goods and services between the parties who agree on it. Main features are strong encryption applicable to the cryptocurrencies and blockchain-based technologies.
While there is no specific crypto tax in Canada, crypto is taxable and is mainly subject to income tax and capital gains tax.
The tax authority is called Canada Revenue Agency (CRA).
Despite of it's name, cryptocurrencies are not treated as currency or money. CRA considers it property for the tax purposes.
You should not try to hide your crypto from them. When you open an account with the crypto providers, you send them your identification documents for AML purposes. Most of the crypto providers have data sharing programs with the state authorities including the CRA. CRA specifically announced that crypto exchanges share information with them. Thus it’s reasonable to assume that CRA already knows about your crypto transactions. Tax evasion is a serious crime in Canada so always do file tax returns and show all your crypto income.
For the tax purposes, all your crypto owned, sold, traded, acquired shall be valued in Canadian Dollars ($) – you shall use a reasonable method to determine the fair market value of the crypto (usually it’s the exchange rate of the crypto provider) as of the date of the event or transaction.
While there is no specific crypto tax in Canada, crypto is taxable and is mainly subject to income tax and capital gains tax.
The tax authority is called Canada Revenue Agency (CRA).
Despite of it's name, cryptocurrencies are not treated as currency or money. CRA considers it property for the tax purposes.
You should not try to hide your crypto from them. When you open an account with the crypto providers, you send them your identification documents for AML purposes. Most of the crypto providers have data sharing programs with the state authorities including the CRA. CRA specifically announced that crypto exchanges share information with them. Thus it’s reasonable to assume that CRA already knows about your crypto transactions. Tax evasion is a serious crime in Canada so always do file tax returns and show all your crypto income.
For the tax purposes, all your crypto owned, sold, traded, acquired shall be valued in Canadian Dollars ($) – you shall use a reasonable method to determine the fair market value of the crypto (usually it’s the exchange rate of the crypto provider) as of the date of the event or transaction.
Deadlines to remember and forms to complete
Canadian tax year lasts from January 01 until December 31.
You will need to file your tax return that would include all your income, gains and losses and pay taxes no later than April 30 of the next year.
You will need to file your tax return that would include all your income, gains and losses and pay taxes no later than April 30 of the next year.
Taxes applicable on cryptocurrencies
Canadian tax authorities have two main taxes in crypto: income tax and capital gains tax. The borderline is not only the type of the transactions but rather the volume and terms of activity performed.
Same type of transaction could be considered either business income and would trigger income tax, or capital gains tax that have a significant advantage of 50% tax discount.
From transactional perspective, income tax usually arises when the individual receives crypto as earning, like salary, or receives coins for mining activity or airdrops or when the person sells crypto on a regular basis. While capital gain tax is triggered by a disposal of the previously owned crypto which leads to a profit.
It’s the obligation of the tax payer to make an initial assessment of the types and volume of the transactions and distinguish between the income and capital gain taxes. CRA provides for the guidance in this regard and treats each case individually. Even a single transaction might be considered business income and will be 100% taxable, while capital gains are half taxed.
Same type of transaction could be considered either business income and would trigger income tax, or capital gains tax that have a significant advantage of 50% tax discount.
From transactional perspective, income tax usually arises when the individual receives crypto as earning, like salary, or receives coins for mining activity or airdrops or when the person sells crypto on a regular basis. While capital gain tax is triggered by a disposal of the previously owned crypto which leads to a profit.
It’s the obligation of the tax payer to make an initial assessment of the types and volume of the transactions and distinguish between the income and capital gain taxes. CRA provides for the guidance in this regard and treats each case individually. Even a single transaction might be considered business income and will be 100% taxable, while capital gains are half taxed.
Taxable events
Let’s first discuss which of the transactions are considered taxable events. Actually most of them that could ever involve crypto: disposal of crypto and getting a profit and earning new crypto.
For the tax purposes, disposal means “getting rid” of your crypto by any of the following means:
For the tax purposes, disposal means “getting rid” of your crypto by any of the following means:
- Selling crypto to fiat currency
- Swap, trade, exchange one coin to another
- Use crypto to buy goods and services;
- Gift crypto
Other activities that would give rise to crypto tax would be:
- mining and staking;
- receiving salary in crypto;
- selling the NFT that you have created as an artist.
Business profit v. non-business
In Canada distinguishing between business and non-business profits (capital gains) is of crucial importance: while you pay 100% tax on any income received from business activity, you pay only half of it for non-business one.
CRA gives some examples that could help you to decide between those types:
There may be other criteria and each case would be individually considered.
When you do business, you have however the right to use all the expenses you incurred to deduct from the profit made (e.g. electricity bills and hardware costs that you used for mining).
CRA gives some examples that could help you to decide between those types:
- Your crypto activity is performed on a regular basis
- You have a business plan, you use additional equipment or assets to perform crypto transactions;
- Your main reason for transactions is commercially driven.
There may be other criteria and each case would be individually considered.
When you do business, you have however the right to use all the expenses you incurred to deduct from the profit made (e.g. electricity bills and hardware costs that you used for mining).
How you calculate the amount of tax to pay
When you earn a new coin from mining or receive it from your employer, it’s easy to realize you have got taxable income. It’s a bit more difficult with the disposal events.
When you sell, swap, gift crypto, you may get a gain or loss as a result. If you have a gain – you may pay tax on it. If you have a loss – not only you don’t need to pay tax, but rather you can reduce your gains in the current tax year and you can even carry it forward to the next years.
To calculate gains or losses you shall take the difference between the CAD equivalent of your crypto at the time you disposed of it and at the time you got it. If the result is more than zero – you have a gain for this asset. If it’s less than zero – you have a loss and you don’t need to pay the tax and can even reduce your tax due.
If the asset was acquired for free, you shall take the fair market value of the asset at the date of acquisition.
Gain/loss = your disposal price in CAD – your cost basis in CAD (the acquisition price + expense/deductible fees)
Example: you regularly buy and sell crypto. You have spent $ 100 000 on it in total and the total amount of selling price is $200 000. It is a business activity and all your $ 100 000 gains shall be reported and will be fully taxable minus the deductions for all the applicable expenses.
Example: you buy Coin A for $ 3000 and later sell it for $ 4000. You have a $ 1000 gain. However it’s not a commercial activity and you pay tax only on half of your profits ($ 500).
It’s easy if you have acquired a number of crypto items at once and have sold the same number in one take. However it’s not always the case. If you sell only part of the items you hold, you may face the following situation:
You bought 1 Coin A for $5000. Later you bought another Coin A for $10 000. Now when you decide to sell one Coin A, Coin’s A value equals to $7000. Which of the coins A shall be accounted for the tax purposes? The first one or the second one? If we take the first one – you have $2000 profit. If we take the second one, you have a loss of $3000. This makes a serious difference. In order to sort it out, you shall have a fair treatment in such situations.
CRA suggests to use the average cost method to account the gains and losses in disposal transactions. First all your coins shall be divided into different pools which would consist of coins of the same kind. Then you calculate the total cost you paid for all the coins in each pool and divide it by the number of the respective units.
Example: You have bought 1 Coin A for $3000, then 1 Coin A for $4000 and 1 Coin A for $5000. You have paid $12 000 for 3 coins. The average cost is thus ($3000+$4000+$5000)/3 = $4000 and this value shall be used as a cost basis.
Capital gains tax (Non-business tax)
While income tax is applicable to the commercial types of cryptocurrency transactions and all the 100% of the profit will be taxed (except permissible deductions), capital gains tax is applicable to the disposal transactions on a hobby level with a 50% discount. Let’s see how it works.
You use the similar rules for calculating the tax basis. However the final taxable gain will be halved, it’s called Taxable capital gain.
Gain/loss = your disposal price in CAD – your cost basis in CAD (the acquisition price + expense/deductible fees)
Example: You acquired 1 Coin X for $1000 and paid a $100 fee. Then you sell your Coin for $2000 and paid a fee of $100. The cost basis is thus $1100. Capital gain equals to $2000 less the cost basis of $1100 + the new fee of $100.
$2000 - $100 – ($1000 + $100) = $800
If based on the volume and nature of the transition it’s not considered a business type one, then you can halve the taxable amount: $800/2 = $400 will be your ultimate taxable capital gains basis.
Note also that the losses will be halved too: you will be able to deduct only 50% of the capital losses against capital gains.
Example: you have acquire Coin A for $ 3000 and later sold it for $ 2000. You have a $ 1000 loss that you could use to offset your gains. However if your transaction is not considered commercial, you can only use $500 as capital loss.
Losses
If you are subject to Income tax, you can deduct all the losses. If you are subject to capital gains tax, only half of your losses can be used to reduce your tax base.
Note that you can anyway use losses to reduce capital gains, you can not use capital gains losses to reduce e.g. employment income. You can also carry the losses forward to next year.
If your crypto is lost or stolen, you may claim a capital loss. CRA hasn’t issued a detailed guidance on this issue, however it’s not prohibited. Thus it’s reasonable to assume that these types of losses may be claimed and would deduct your gains.
When you sell, swap, gift crypto, you may get a gain or loss as a result. If you have a gain – you may pay tax on it. If you have a loss – not only you don’t need to pay tax, but rather you can reduce your gains in the current tax year and you can even carry it forward to the next years.
To calculate gains or losses you shall take the difference between the CAD equivalent of your crypto at the time you disposed of it and at the time you got it. If the result is more than zero – you have a gain for this asset. If it’s less than zero – you have a loss and you don’t need to pay the tax and can even reduce your tax due.
If the asset was acquired for free, you shall take the fair market value of the asset at the date of acquisition.
Gain/loss = your disposal price in CAD – your cost basis in CAD (the acquisition price + expense/deductible fees)
Example: you regularly buy and sell crypto. You have spent $ 100 000 on it in total and the total amount of selling price is $200 000. It is a business activity and all your $ 100 000 gains shall be reported and will be fully taxable minus the deductions for all the applicable expenses.
Example: you buy Coin A for $ 3000 and later sell it for $ 4000. You have a $ 1000 gain. However it’s not a commercial activity and you pay tax only on half of your profits ($ 500).
It’s easy if you have acquired a number of crypto items at once and have sold the same number in one take. However it’s not always the case. If you sell only part of the items you hold, you may face the following situation:
You bought 1 Coin A for $5000. Later you bought another Coin A for $10 000. Now when you decide to sell one Coin A, Coin’s A value equals to $7000. Which of the coins A shall be accounted for the tax purposes? The first one or the second one? If we take the first one – you have $2000 profit. If we take the second one, you have a loss of $3000. This makes a serious difference. In order to sort it out, you shall have a fair treatment in such situations.
CRA suggests to use the average cost method to account the gains and losses in disposal transactions. First all your coins shall be divided into different pools which would consist of coins of the same kind. Then you calculate the total cost you paid for all the coins in each pool and divide it by the number of the respective units.
Example: You have bought 1 Coin A for $3000, then 1 Coin A for $4000 and 1 Coin A for $5000. You have paid $12 000 for 3 coins. The average cost is thus ($3000+$4000+$5000)/3 = $4000 and this value shall be used as a cost basis.
Capital gains tax (Non-business tax)
While income tax is applicable to the commercial types of cryptocurrency transactions and all the 100% of the profit will be taxed (except permissible deductions), capital gains tax is applicable to the disposal transactions on a hobby level with a 50% discount. Let’s see how it works.
You use the similar rules for calculating the tax basis. However the final taxable gain will be halved, it’s called Taxable capital gain.
Gain/loss = your disposal price in CAD – your cost basis in CAD (the acquisition price + expense/deductible fees)
Example: You acquired 1 Coin X for $1000 and paid a $100 fee. Then you sell your Coin for $2000 and paid a fee of $100. The cost basis is thus $1100. Capital gain equals to $2000 less the cost basis of $1100 + the new fee of $100.
$2000 - $100 – ($1000 + $100) = $800
If based on the volume and nature of the transition it’s not considered a business type one, then you can halve the taxable amount: $800/2 = $400 will be your ultimate taxable capital gains basis.
Note also that the losses will be halved too: you will be able to deduct only 50% of the capital losses against capital gains.
Example: you have acquire Coin A for $ 3000 and later sold it for $ 2000. You have a $ 1000 loss that you could use to offset your gains. However if your transaction is not considered commercial, you can only use $500 as capital loss.
Losses
If you are subject to Income tax, you can deduct all the losses. If you are subject to capital gains tax, only half of your losses can be used to reduce your tax base.
Note that you can anyway use losses to reduce capital gains, you can not use capital gains losses to reduce e.g. employment income. You can also carry the losses forward to next year.
If your crypto is lost or stolen, you may claim a capital loss. CRA hasn’t issued a detailed guidance on this issue, however it’s not prohibited. Thus it’s reasonable to assume that these types of losses may be claimed and would deduct your gains.
Tax Rates
In Canada there are two types of rates: federal rates that are applicable to all individuals and provincial rates depending on the place where you reside.
The total amount of tax is thus depends on the total amount of income received throughout the year and the place where you reside. You shall pay both national and regional taxes.
Federal tax rates for the year 2022 are as follows:
The total amount of tax is thus depends on the total amount of income received throughout the year and the place where you reside. You shall pay both national and regional taxes.
Federal tax rates for the year 2022 are as follows:
Both types of rates are progressive. Which means that if you have received for example $125 000 of annual income, you don’t pay 26% on the whole amount. You pay 15% on your first 50,197, then 20.5% on the $50,195, and then 26% on the remaining amount.
Provincial and territorial tax rates for 2022 greatly varies. To give you examples let’s see Ontario, British Columbia and Alberta rates:
Provincial and territorial tax rates for 2022 greatly varies. To give you examples let’s see Ontario, British Columbia and Alberta rates:
Ontario:
British Columbia:
Alberta:
There are no separate capital gains tax rates. They are the same as federal income rates and regional ones, but you are entitled to divide your gains by two and thus effectively pay only half of the gains.
Tax exemptions and discounts to reduce your tax liability
Although most of the transactions imply taxes, some are exempted. This might be the case if you:
- hold crypto;
- buy cryptocurrency for fiat currency;
- transfer the crypto between your wallets.
There are also some discounts you may be eligible for:
- if your transactions are not considered commercial, you tax only half of the profit made;
- you can offset losses against the gains;
- you don’t pay tax of your total income per year is less than the permitted allowance. It’s called basic personal amount and equals to $14 398 in 2022. If your taxable income is more than the basic personal amount, you still can use this allowance to lower your income;
- if you have not fully used your personal income tax allowance and you are a married person, you can transfer part of your allowance to your partner
Specific cases to consider:
Mining
CRA treats hobby miners and professionals differently. This will be decided on a case-by-case basis. Occasional hobby mining will not be taxed as income. While business mining will be taxed on income tax rates. All the expenses related to mining can be deducted. The fair market value on the date of receipt shall be applied for the mined coins for tax purposes.
Staking; airdrops
CRA has not issued a guidance thereof. However it’s reasonable to treat staking awards and airdropped coins similar to mining.
NFT’s
While there is no clear tax guidance on NFT’s, it would be safe to assume that similar rules for disposals will be applicable to them: if you conduct a professional activity, you will be subject to income tax rates. If you have performed a transaction on a non-business level, you can use capital gains tax rates. Creating NFT’s as an artist will most probably be treated as a business income.
DeFi transactions
There is no guidance yet, thus same rules apply on treating income as either business or non-business one.
While some of the above activities do not give rise to tax if being performed on a non-business level, you shall note that when you later sell any of your mined or airdropped coins, you may be subject to capital gains tax if you got a profit. Don’t worry about double taxation – this is not actually the case here. Imagine you mine a coin worth $ 100. If it’s a one-off hobby mining, you don’t pay tax. If you later sell it for $ 150, you pay capital gains tax on the difference between the initial cost and the cost of selling: $150 - $100 = $50 which is your gain and you will need to pay tax on it.
CRA treats hobby miners and professionals differently. This will be decided on a case-by-case basis. Occasional hobby mining will not be taxed as income. While business mining will be taxed on income tax rates. All the expenses related to mining can be deducted. The fair market value on the date of receipt shall be applied for the mined coins for tax purposes.
Staking; airdrops
CRA has not issued a guidance thereof. However it’s reasonable to treat staking awards and airdropped coins similar to mining.
NFT’s
While there is no clear tax guidance on NFT’s, it would be safe to assume that similar rules for disposals will be applicable to them: if you conduct a professional activity, you will be subject to income tax rates. If you have performed a transaction on a non-business level, you can use capital gains tax rates. Creating NFT’s as an artist will most probably be treated as a business income.
DeFi transactions
There is no guidance yet, thus same rules apply on treating income as either business or non-business one.
While some of the above activities do not give rise to tax if being performed on a non-business level, you shall note that when you later sell any of your mined or airdropped coins, you may be subject to capital gains tax if you got a profit. Don’t worry about double taxation – this is not actually the case here. Imagine you mine a coin worth $ 100. If it’s a one-off hobby mining, you don’t pay tax. If you later sell it for $ 150, you pay capital gains tax on the difference between the initial cost and the cost of selling: $150 - $100 = $50 which is your gain and you will need to pay tax on it.
Records you need to keep
CRA requires to keep records of all the cryptocurrency transactions. It’s the tax payer’s responsibility. If for example the crypto exchange collapses, this won’t release you from this obligation and thus you are advised to record carefully all your data related to crypto for at least 6 years. The records and supporting documents shall include:
-
The type of the cryptoassets and the number of units - Date of the transactions and it’s type (sell/buy/gift etc)
- Value of the transaction in CAD as at the date of the transaction
- The record of the other party involved (other party’s crypto wallet or your own one)
- Bank and exchange statements related to the transaction
- Records related to the costs applicable to the transactions
Note also that you are advised to carefully record all the data about your transactions, even if they are tax exempted or discounted. You might need these records later.
Liability
Tax evasion is a very serious crime in Canada and might end up in a long-time imprisonment or significant fines.
Tax evasion is a very serious crime in Canada and might end up in a long-time imprisonment or significant fines.
