Are you someone who loves investing in crypto assets and barely knows the tax implications these transactions attract?
Well. if you’re, you’ve come to the right spot because we’ve curated the perfect guide for you covering all aspects of crypto taxation including De-Fi taxation, capital gains tax, income tax, and taxes exemptions. We have also discussed some strategies that will help you significantly reduce your tax bill from this point forward.
Not to mention that this guide will be updated regularly and will accommodate any new guidelines, rules, or legislation enforced by the Canadian tax authorities. Therefore, we suggest you read this blog thoroughly and keep revisiting it to stay updated on new tax updates.
Crypto Gains Tax
Crypto assets are not considered a currency and are instead categorized as property for tax purposes. This implies that any gains made from the disposal of these assets will be considered capital gains. From a tax perspective, this translates to the disposal of capital assets being a taxable event and the gains incurred will be subjected to a capital gains tax. The following transactions are considered as disposal by the Canadian tax authorities:
- Selling crypto for fiat
- Gifting crypto
- Buying a product or service with crypto
- Swapping crypto for other crypto assets
But this is just half the story because you don’t have to pay taxes on all your entire capital gains. According to the CRA(Canada Revenue Agency), you only pay taxes on 50% of your gains.
Capital Gains Tax Rate Canada
Canada doesn’t have a dedicated capital gains tax rate nor does it have a short-term and long-term capital gains tax structure. Your capital gains are subjected to federal and provincial income tax. It’s important to note that only 50% of your capital gains are subjected to these taxes. Given below are the federal income tax rates for the 2023–2024 tax year:
You can view a detailed list of provincial taxes for all the provinces in Canada here.
Crypto Losses
Don’t worry if a market correction has left you with a pile of losses, you won’t be taxed on any of it. But instead of just letting it all go to waste, you can use them to reduce your tax bill by offsetting them against your capital gains. Remember that you can only offset 50% of your losses against your gains in a tax year similar to the capital gain taxation rule. If you still have leftover losses after that, you can carry them forward into the subsequent tax year as future losses and write them off against future gains.
Even if you’ve made no capital gains in a tax year, you can report all your capital losses to the CRA and carry them forward as a contingency write-off fund for any future gains you make.
Lost or Stolen Crypto
The CRA is yet to release guidelines on lost and stolen crypto assets and whether you can use them as a tax-deductible. However, the CRA does allow Canadian residents to deduct capital losses due to the theft of other capital assets and since crypto assets are considered by the tax authorities to be a type of capital asset, you might be able to claim a tax deduction on your lost or stolen crypto assets in Canada.
How to Calculate Crypto Gains and Losses
You need to keep a clear record of all your gains and losses to have a smooth tax filing at the end of the tax year. And for that to happen you need to be able to calculate your gains and losses.
The moment you dispose of your crypto assets by selling, swapping, or gifting them, you have intentionally or unintentionally made a capital gain or a loss. This capital gain or loss is simply the difference between the disposal amount and your cost basis. If you’re not aware of what a cost basis is, and how to calculate it, read the next paragraph, otherwise skip to the next section.
Your cost basis is the price you paid to acquire a particular asset which in this case happens to be crypto. Now for crypto assets, the cost basis is the fair market value of the asset at the time of acquisition plus any fees incurred in its receipt, like gas fees or transaction fees.
It is important to note that tokens received from airdrops inherit the cost basis equal to the fair market value of the asset at the time of receipt.
Crypto Tax Breaks Canada
The CRA offers the following tax breaks to Canadian residents
- Personal Tax Allowance
The CRA offers a tax-free allowance of $14,398 to every resident which means that the first $14,398 you make will be tax-free in Canada.
- Spousal Tax Credit
The spousal tax credit allows you to transfer your unused tax credit to your married or legal partner. If your income is $8,000 while your partner makes $20,000, you can transfer the remaining $6,398 of your tax credit to your partner.
- 50% Capital Gains Taxation
As mentioned above, only 50% of your capital gains are taxable in Canada, therefore you don’t need to worry about your entire earning being taxed.
Crypto Cost Basis Method Canada
In Canada, the adjusted cost basis method is used for cost basis calculations, allowing you to modify your cost basis to reflect the true amount of funds invested in a specific capital asset. This approach facilitates the accommodation of all the expenses incurred while acquiring the asset, such as exchange and gas fees associated with carrying out transactions on a network.
In case you own several identical assets, the CRA recommends utilizing the average cost basis method. The average cost basis method is a way of figuring out the total cost of a group of identical assets that you own.
Let’s say you own 10 BTC, and you bought them at different times for different prices. To find out your average cost basis, you would add up the total amount you paid for all 10 BTC tokens, and then divide that by the number of tokens you own.
Crypto Income Tax Canada
Now that we’ve covered how capital gains are taxed in Canada, it’s now time to understand how crypto income is viewed by the CRA for tax purposes.
Suppose you appear to be making regular or recurring income from crypto assets in a business-like fashion. In that case, your transactions will be treated as discrete business operations and an income tax will be levied on them. Here are some transactions that may attract an income tax in Canada:
- Getting paid in crypto
- Minting crypto or NFTs from blockchain
- Referral awards
- Rewards from staking
- Selling self-curated NFTs
Many play-to-earn games and similar interact-to-earn platforms have emerged lately. The profits you earn from these platforms may qualify as business income and may be liable for Income Tax. Listed below are some examples:
- Earnings from CoinMarketCap Learning and Binance Learning platforms
- Earnings from P2E games like Axie Infinity and Decentraland
- Any income made from browse-2-earn platforms like Brave and Permission.io
- Income made from Watch-2-Earn platforms like Odysee
Income Tax Rate Canada
The income tax rates in Canada are the same as the Provincial income tax rates and the federal income tax rates as mentioned in the “Capital Gains Tax Rate” section above. You can revisit the section or look at a comprehensive list of income tax rates in Canada here.
How to Calculate Crypto Income
Unlike calculating capital gains or losses, calculating your crypto income is simple. All you need to do is to find the fair market value of the products at the time you receive the assets and do it for all the assets you’ve received over a tax year and then add them all up. The number you get is your taxable income base and you can apply the federal and provincial income tax rates to them to calculate how much you owe as income tax to the CRA.
Tax-Free Crypto Transactions
Although crypto transactions are taxable in Canada, some transactions are tax-free:
- Buying crypto with fiat currency
- Donations using crypto are tax-free
- Holding crypto
- Crypto being gifted to you
- Creating a DAO
- Moving crypto assets between wallets
Taxed Transactions
The following transactions are considered taxable in Canada:
- Trading one type of cryptocurrency for another type (e.g., selling Bitcoin for Ethereum)
- Selling cryptocurrency for Canadian dollars or any other currency
- Using cryptocurrency to purchase goods or services
- Mining cryptocurrency as a business or commercial activity
- Receiving cryptocurrency as payment for goods or services
- Receiving cryptocurrency as a reward for staking or participating in a proof-of-stake network
- Receiving cryptocurrency as a result of a hard fork or airdrop
When to Report Crypto Taxes in Canada
The tax year in Canada follows the calendar year and therefore, it starts on 1st January and ends on 31st December. For Canadian citizens, it is important to note that the reporting of income, capital gains and losses related to cryptocurrency must be communicated to the CRA by April 30th, 2023.
If the deadline coincides with a weekend, taxpayers are granted an extension until May 1st, 2023 to fulfil this obligation. It is advisable not to procrastinate on this matter, as individuals are free to begin submitting their tax returns by the end of February.
Note that your tax payment will only be considered on time if it’s received or processed by the CRA on or before May 1st of every year.
How to File Crypto Taxes in Canada
There are several ways you can choose to file your taxes in Canada. We have listed some of them below:
- File your taxes through a certified tax software
You can use certified tax software like Kryptoskatt to file your taxes in Canada. It is quite convenient and creates a legally-compliant tax report in a matter of minutes by auto-fetching all your transactions and incorporating any deductions that are possible. With certified tax software, you can complete your tax returns within 2 weeks.
- File your taxes through a tax accountant
A tax accountant is someone well-versed in the tax infrastructure and can help you save a lot of time and money by utilizing existing loopholes in the system. The only demerit of using this option is the high accountant consulting fee which may not make sense to you if you have a nominal income.
- File your taxes through a volunteer tax clinic
Tax clinics have volunteers who can file your taxes for free. All you need to do is find one and hand over your transaction records. Note that this might not be the ideal option for someone with a complex set of transactions and high income.
- Through a Discounter (preparer)
A discounter is a tax preparer who provides an upfront discounted tax refund by computing your refund amount, even before submitting your tax return. Filing your tax return through a tax preparer is the fastest way to file your taxes because the discounter pays you a discounted return right away before filing your taxes.
Tax on Mining Crypto in Canada
Your mining activities are taxed based on your intentions and the nature of your returns. If you’re seen as an individual doing it as a hobby, you will attract capital gains tax. While if you appear to be mining as a business, the gains will be taxed as income.
Mining as a Hobby
If you’re mining as a hobby, you will not attract income tax. The tokens received as mining rewards will inherit the cost basis equal to $0. Which makes sure that all your gains will be taxed once you dispose of these tokens by selling, swapping, or gifting these assets.
Mining as a Business
Mining as a business is quite different from mining as an individual. Any tokens that you own are considered an inventory and you have to value these assets using any one of the following methods:
- Value each asset by the acquisition cost or their fair market value at the end of the tax year.
- Value the entire inventory at its fair market value at the end of the tax year.
When determining the value of your inventory, you have the option to use either the cost or fair market value. If you go with the former, you can choose the lower value for each particular cryptocurrency you own, which is a great way to plan for taxes. ‘Cost’ refers to the price paid for acquiring the property, as well as all relevant expenses associated with its purchase. It’s crucial to maintain consistency in the method used to value your property year after year.
Crypto Margin Trading, Futures and CFDs
The taxation of margin trades, futures, and CFDs depends on whether you’re seen as an individual investor or day trader which depends on the scale of transactions.
Individual Investor
If the CRA considers you to be a private investor, any gains from margin trades, derivatives, and other CFDs will be subject to Capital Gains Tax. You won’t owe any tax when you initiate a position. Instead, the tax is applicable only when you settle your position, and any gains resulting from it will be subjected to Capital Gains Tax.
Day Trader
On the other hand, if the CRA perceives you as a day trader who trades frequently at the same level of scale, you’ll be liable to pay Income Tax on all the profits you earn from your trades. As discussed earlier you won’t owe any tax on initiating a position while margin trading, dealing in derivatives, or other CFDs. Instead, you’ll be taxed only when you close your position and realize any profits.
NFT Taxes Canada
As the CRA hasn’t made a conclusive decision on the tax treatment of NFTs, it’s reasonable to infer that they’re regarded as crypto assets based on existing guidance. Consequently, they will be regarded as capital property and will be subject to the same tax obligations as crypto assets.
- Creating and selling NFTs is considered business income and is taxed according to the income tax rates
- Buying NFT for crypto, selling NFT for crypto or fiat, and swapping NFT for another attracts capital gains tax
- Gifting NFTs attracts capital gains tax due to the increase in value of the asset from the time you acquired it to the time you gifted it.
De-Fi Crypto Taxes in Canada
The CRA is yet to release guidelines on the taxation of De-Fi transactions. However, that doesn’t mean that you won’t have to pay any taxes on De-Fi transactions, the following can be inferred from the existing guidelines about De-Fi transactions and their taxation in Canada:
Whenever you receive crypto as a form of compensation, such as through business activities, you’ll probably be accountable for Income Tax. Conversely, when you sell or dispose of your crypto assets, you’ll most likely be liable for Capital Gains Tax. It’s prudent to consult an experienced tax consultant regarding your unique DeFi investment portfolio. That being the case, here are some De-Fi transactions and how they will be taxed according to what we could find and extrapolate:
- Earning Interest from De-Fi protocols: Income tax
- Borrowing funds from De-Fi protocols: No tax
- Paying Interest in De-Fi protocols: CGT
- Selling or Swapping NFTs: Income tax if you’re the creator, CGT if you’re not
- Buying NFTs: CGT when bought with crypto
- Staking on De-Fi protocols: Income tax
- Yield and Liquidity Farming: Income tax
- Adding/Removing Liquidity: CGT
- Returns from De-Fi Margin trades: CGT
Can the CRA Track Crypto Transactions
The answer is yes. So you can safely discard thoughts of not reporting crypto gains on your tax report and consider reporting all your crypto transactions judiciously. Because if that’s not the case, you might end up with some tax complications. Here’s how the CRA tracks crypto transactions:
- The CRA can track the crypto investments of Canadians
- It is also working with crypto exchanges to obtain customer information
- The CRA is using the information to track Canadian crypto investors to ensure accurate reporting of investments and taxes.
- Money service businesses in Canada have to report transactions greater than $10,000 to the CRA.
- The CRA is registered with FINTRAC which investigates money laundering and tax evasion.
- Crypto exchanges registered with FINTRAC in Canada are required to obtain a government-issued ID and proof of address.
- It is yet to specify which crypto exchanges they’re working with other than Coinsquare.
- Most crypto exchanges operating in Canada have had the same data request from the CRA.
What Tax Records will the CRA Want
The CRA has issued clear guidelines regarding the record-keeping of transactions for tax purposes. Here’s a list of documents you should maintain according to the CRA:
- Date and time of transaction
- Receipts of all buy/sell transactions
- A record of the fair market value of assets at the time of purchase
- Transaction description crypto address of other parties involved
- Additional charges
- Exchange records
- Digital wallet records and wallet addresses
How are Airdrops and Forks Taxed in Canada
Although the Canada Revenue Agency (CRA) hasn’t provided explicit instructions on the tax implications of airdrops and forks in Canada, we can deduce their tax treatment based on the CRA’s guidelines for categorizing business income. It’s improbable that airdrops and forks will be subjected to taxation upon reception. You’ll be obligated to pay Capital Gains Tax when you dispose of the coins or tokens you received from the airdrop or hard fork.
Frequently Asked Questions(FAQs)
- Is crypto legal in Canada?
Yes, crypto is legal in Canada. The Canadian government does not consider cryptocurrency legal tender, but it is recognized as a commodity and is subject to tax laws. The country has a regulatory framework for cryptocurrencies and exchanges called the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), which requires cryptocurrency businesses to register with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) as money services businesses (MSBs) and comply with certain anti-money laundering and know-your-customer (KYC) requirements.
- How is Crypto Taxed in Canada?
In Canada, cryptocurrency is subject to taxation and is treated as a commodity for tax purposes. The Canada Revenue Agency (CRA) treats cryptocurrency transactions similar to barter transactions, meaning that buying, selling, or trading cryptocurrencies can result in capital gains or losses. Here are some ways crypto is taxed in Canada:
- When you sell or dispose of cryptocurrency, you may incur capital gains or losses that are taxable. Capital gains are calculated by subtracting the cost of the cryptocurrency from the proceeds of the sale.
- If you earn cryptocurrency as payment for goods or services, it is considered business income and is subject to income tax. The amount of tax you owe will depend on your marginal tax rate.
- If you mine cryptocurrency as a business, the value of the coins mined is considered business income and is subject to income tax.
- Cryptocurrency transactions may be subject to the Goods and Services Tax/Harmonized Sales Tax (GST/HST), depending on the type of transaction and the parties involved.
- How much tax do you pay on crypto in Canada?
The amount of tax you pay on crypto in Canada depends on the type of transaction, the amount of profit or gain you make, and your overall income tax bracket. Here are some examples:
- Capital Gains Tax: When you sell or dispose of cryptocurrency, any gains you make are subject to capital gains tax. The tax you pay depends on your marginal tax rate, which ranges from 20% to 53.53% in Canada. However, only 50% of the capital gains are taxable.
- Income Tax: If you earn cryptocurrency as payment for goods or services, the income is considered business income and is subject to income tax. The amount of tax you pay depends on your marginal tax rate and income.
- Mining Income: If you mine cryptocurrency as a business, the value of the coins mined is considered business income and is subject to income tax. The amount of tax you pay depends on your marginal tax rate and the amount of income you earn.
- GST/HST: Cryptocurrency transactions may be subject to the Goods and Services Tax/Harmonized Sales Tax (GST/HST), depending on the type of transaction and the parties involved.
- Which crypto exchanges are banned in Canada?
There are thousands of crypto exchanges in Canada operating under the nose of tax authorities and offering their services without their approval, and we can’t mention all of them here. Instead, we have prepared a list of crypto exchanges approved by the CRA in Canada.
