Crypto Tax

Yes, all cryptocurrency transactions in Canada are subject to tax, including the sale of crypto. These transactions may incur GST/HST, income tax, or capital gains tax, depending on the nature of the activity—for example, buying goods and services, giving cryptocurrency as a gift, or trading one cryptocurrency for another.

However, the applicable activities and tax rates are assessed on a case-by-case basis. This is why it’s critical to consult knowledgeable crypto tax lawyers or a crypto tax accountant in Canada for personalized advice.

The Canada Revenue Agency (CRA) classifies cryptocurrency as a commodity. This means that transactions involving cryptocurrency can result in either capital gains tax or business income tax, depending on the nature of your activity. Here’s an overview of how crypto is taxed in Canada:

1. Capital Gains vs. Business Income: To determine whether your crypto transactions are subject to capital gains tax (as a capital asset) or business income tax (as inventory), the CRA considers several factors, including:

• Transaction frequency.
• Holding period.
• Knowledge of the cryptocurrency market.
• Intention behind the transactions.

Capital Assets:

• If you hold cryptocurrency as an investment and sell or trade it, any profit is taxed as a capital gain.
• The capital gains inclusion rate is 50% for gains up to $250,000. For the portion of gains exceeding $250,000, the inclusion rate is 66.67%.
• Similarly, 50% or 66.67% of capital losses, depending on the tier, can be used to offset capital gains.

Inventory (Business Income):

• If your crypto activity resembles a business (e.g., frequent trading or mining), profits are treated as business income and taxed at your full marginal rate.
• Unlike capital gains, there’s no partial inclusion rate—100% of business income is taxable.

2. Crypto Tax Rates: There are no special tax rates for cryptocurrency. The tax you pay aligns with your marginal tax rate, which combines federal and provincial/territorial rates.

• Credits and deductions may lower your taxable income, but crypto income is treated like any other form of income or capital gain.

Example:

• If you’re in a 30% federal marginal tax bracket, you’ll pay 30% on any crypto business income (since 100% of the income is taxable) plus the provincial tax. For capital gains, the tax payable will depend on the portion of the gain. Gains up to $250,000 will be taxed federally at 15% (50% inclusion rate multiplied by 30%), while gains exceeding $250,000 will be taxed at 20% (66.67% inclusion rate multiplied by 30%), plus the provincial tax.

3. GST/HST on Crypto Transactions: If you sell goods or services in exchange for cryptocurrency, GST/HST applies based on the value of the transaction in Canadian dollars. Keep records of the exchange rate on the transaction date.

4. Crypto Tax Filing: You file crypto taxes in Canada at the same time that you file your regular income tax return in Canada, typically April 30 for most individuals or June 15 for self-employed individuals. However, you may require the services of an experienced crypto tax lawyer for a case-by-case analysis of your cryptocurrency transactions to properly determine whether your crypto transactions are eligible for capital gains or business income tax.

Lastly, you’re required to file a T1135 form if your cryptocurrency is capital property, and if your tax cost exceeds $100,000.

5. Record-Keeping for CRA Compliance: To ensure accurate tax reporting and avoid CRA penalties, you must maintain detailed records of all cryptocurrency transactions. This includes purchase and sale dates, fair market values (FMV) in CAD at the time of each transaction, the purpose of each transaction (e.g., investment, payment, or business), and the exchange rates used for conversions. Proper record-keeping is essential for calculating your adjusted cost base (ACB) and determining whether your transactions are subject to capital gains or business income tax.

When dealing with cryptocurrency in Canada, you may need the following tax documents to ensure proper reporting to the Canada Revenue Agency (CRA):

1. Schedule 3 – Capital Gains: Report capital gains from selling, trading, or using cryptocurrencies.
2. T1 Income Tax Return: Standard form for reporting total income, including taxable capital gains.
3. Form T2125 – Statement of Business or Professional Activities: Required if engaged in cryptocurrency activities as a business (e.g., trading, mining).
4. Form T1135 – Foreign Income Verification Statement: Necessary if the total cost of specified foreign property, including crypto held outside Canada, exceeds $100,000.

Also, you’re required to keep proper documentation of the following records:

• Transaction Records: Dates, fair market value (in CAD), wallet addresses, purpose (e.g., investment, payment, business), and fees.
• Business Records: Income and expenses (e.g., mining rewards, operational costs) if crypto activity is considered a business.
• Receipts and Statements: Proof of purchases, sales, fiat conversions, and goods/services transactions.

Keeping detailed records and supporting documents is critical for accurate tax reporting and to avoid CRA penalties.

The amount of tax you pay on cryptocurrency in Canada depends on how the CRA classifies your crypto activity:

1. Capital Gains Tax: If your cryptocurrency is considered a capital asset (e.g., held as an investment), you pay tax on 50% of the gain up to $250,000 and 66.67% of any gain above that threshold.
2. Example: If you sell crypto for a $12,000 gain; assuming your total capital gains for the year are less than $250,000, only 50% of the gain is taxable. Which means the taxable amount is $12,000 x 50% = $6,000. For someone in a 30% tax bracket, that would result in $1,800 in taxes (30% of $6,000).
3. Business Income Tax: If your crypto activity is considered a business (e.g., frequent trading, mining, or staking), 100% of the profit is taxed as business income.
4. Example: If you sell crypto for a $12,000 gain for someone in a 30% tax bracket, that would result in $3,600 in taxes (30% of $12,000) federally plus the provincial tax.
5. Tax-Free Transactions: Certain transactions are not taxable, including buying crypto with fiat currency, holding crypto, transferring it between your wallets, receiving it as a gift, or creating a decentralized autonomous organization (DAO).

Overall, the effective tax rate on your crypto transactions will vary based on your total income and the specific nature of your crypto activities

In Canada, the capital gains tax on cryptocurrency applies when crypto is classified as a capital asset, typically held for investment purposes. Here’s how it works:

A capital gain occurs when you sell, trade, or dispose of cryptocurrency for more than its adjusted cost base (ACB) (essentially, what you paid for it).

Example: If you sell crypto for a $12,000 gain; assuming your total capital gains for the year are less than $250,000, only 50% of the gain is taxable. Which means the taxable amount is $12,000 x 50% = $6,000. For someone in a 30% tax bracket, that would result in $1,800 in taxes (30% of $6,000).

Likewise, Capital losses from crypto can offset capital gains in the same year or be carried forward to future years to reduce taxes.

Cryptocurrency mining in Canada is subject to taxation, but the tax treatment depends on the nature of the mining activity and how it is characterized. The Canada Revenue Agency (CRA) identifies three possible classifications for mining, each with distinct tax implications. Additionally, the mining activity itself and the eventual disposition of mined cryptocurrency are treated separately under Canadian tax law:

1. Hobby Mining:
   • If mining is purely a hobby with no commercial intent, it doesn’t qualify as a source of income.
   • Income is only recognized upon disposing of the mined cryptocurrency, resulting in capital gains or losses rather than business income or losses.
2. Mining as Inventory Acquisition:
   • When mining is part of a cryptocurrency trading business, the mined cryptocurrency is considered inventory.
   • No income is recognized at the time of mining; gains or losses are realized upon disposal and reported as business income or losses.
3. Mining as a Service:
   • Mining is treated as a service if the activity involves validating blockchain transactions in exchange for mining rewards.
   • The fair-market value (in CAD) of the cryptocurrency received as a reward is fully taxable as business income when received. The miner can adjust the tax cost of the cryptocurrency to prevent double taxation upon its eventual sale.

The tax treatment of mining depends on individual circumstances and requires careful analysis. To ensure compliance and proper reporting, miners should seek guidance from a Canadian crypto-tax lawyer.

In Canada, you can claim crypto losses depending on whether your activity is classified as investment or business-related. If you’re holding cryptocurrency as an investment, losses from selling or trading at a lower price than the purchase cost are considered capital losses. These losses can offset capital gains, with 50% of the capital loss being deductible for gains up to $250,000. For gains exceeding $250,000, 66.7% of the capital loss is deductible. If you don’t use the loss in the current year, it can be carried forward to offset future gains or carried back to reduce past gains.

For business losses related to crypto mining or trading, losses are considered business losses. These can offset other business income and can be carried forward or backward to reduce future or past business income.

When reporting, capital losses are filed on Schedule 3 of your T1 General tax return, while business losses are reported on Form T2125. Keep thorough records of purchase and sale prices, transaction fees, and the nature of your crypto activity to ensure accurate reporting. If your situation is complex, it’s advisable to consult a crypto tax professional.

Canadian cryptocurrency tax laws help in the characterization & reporting of cryptocurrency transactions in Canada. Here’s an overview:

1. Crypto as a Commodity:
   The Canada Revenue Agency (CRA) treats cryptocurrency as a commodity, not currency. This affects how crypto transactions are taxed.
2. Capital Gains Tax (Investment):
   • If cryptocurrency is held as an investment (not part of a business), selling or trading it results in capital gains tax.
   • 50% of the capital gain is taxable for gains up to $250,000. For gains over $250,000, 66.7% of the capital gain is taxable, and losses can be used to offset future gains.
3. Business Income Tax (Mining/Trading):
   • If crypto is mined or traded frequently as part of a business, the income generated is subject to business income tax.
   • Related business expenses (e.g., mining equipment, electricity) can be deducted.
4. GST/HST on Crypto Transactions:
   • If you sell goods or services in exchange for cryptocurrency as part of a business, GST/HST applies.
5. Form T1135 Reporting:
   • If the cost of foreign-held cryptocurrency exceeds $100,000, you must file Form T1135 to report these holdings.
6. Tax Reporting:
   • Capital Gains: Report on Schedule 3 of the T1 General tax return.
   • Business Income: Report on Form T2125 for crypto mining or trading activities.
7. Record-Keeping:
   • It’s crucial to keep detailed records of purchase prices, sale prices, and expenses for accurate tax reporting.

For complex cases, it’s advisable to consult an experienced crypto tax lawyer to ensure compliance.

Navigating cryptocurrency taxation in Canada can be overwhelming, but you don’t have to do it alone. At Taxlawyer.com, our experienced crypto tax lawyers serve clients across Canada, including:

From reporting crypto gains and losses to managing mining income and business-related transactions, we simplify complex crypto tax laws. Our team also offers guidance on filing requirements, deductions, and tax relief options.

With the CRA’s evolving policies on crypto taxation, confusion and stress are common. That’s why we provide a free 10-minute consultation to assess your situation and offer clear, practical advice. Take charge of your crypto tax obligations—contact us today to get started!