Are you unsure how cryptocurrency is taxed in Canada? The Canada Revenue Agency has issued recommendations on bitcoin taxes, but they aren’t always clear. Depending on whether your crypto investment is considered business revenue or a capital gain, you’ll have to pay either tax on Capital Gains or Income Tax on it. That, of course, does not make things any clearer.
Don’t worry; we’ve got you covered with some of the basic things you need to know about crypto tax in Canada.
1. Is Crypto Taxable in Canada?
Yes. In Canada, you will be required to pay tax on your bitcoin gains. In Canada, cryptocurrency is not regarded in the same way as fiat cash. As a result, it is treated as a commodity, which is a type of capital asset, similar to a stock or a rental property.
2. Is Crypto Tracked by the CRA?
The Canada Revenue Agency can track your cryptocurrency investments. The CRA revealed that it collaborates with cryptocurrency exchanges to share consumer data. They’re utilizing this data to follow Canadian cryptocurrency investors to make sure they’re appropriately declaring their holdings and paying their due amount of crypto tax.
All money services firms in Canada must inform the CRA of transactions above $10,000 starting January 1, 2022. So, if you pay $10,000 to a crypto exchange, the CRA will be notified. Financial Transactions and Reports Analysis Centre of Canada, also known as FINTRAC, investigates money laundering and tax evasion and oversees all financial institutions. They have also registered the CRA.
Trades for more than $10,000 aren’t always required to be reported. Your government-issued ID and proof of address are necessary if a crypto exchange is registered with FINTRAC in Canada. As a result, your ID is connected to your exchange account and wallet addresses.
3. How is Crypto Taxed in Canada?
The Canadian Revenue Agency (CRA) treats cryptocurrency as a commodity, so the crypto tax in Canada varies. It is either subject to Income Tax or Capital Gains Tax, depending on the situation.
If your cryptocurrency is treated as income, you will be required to pay Income Tax on the total amount of money received from a cryptocurrency transaction. Depending on whether your cryptocurrency is treated as a capital gain, you will only be required to pay Capital Gains Tax on half of any earnings from a cryptocurrency transaction.
4. Calculating Crypto Gains in Canada
Any time you sell, trade, spend, or give away your cryptocurrency, you will incur a capital gain or loss, and you must understand how to compute crypto capital gains. It is the difference in value between when you purchased or otherwise obtained your cryptocurrency and when you disposed of it by selling, trading, spending, or giving it that is referred to as a capital gain or loss.
Having a capital gain means that you’ve made a profit on the difference in value between the two items in question. If you’ve suffered a loss due to the difference in value, you’ve suffered a capital loss.
The process of calculating your cryptocurrency winnings is rather basic. First and foremost, you must determine your cost base. The cost basis is the amount of money it costs you to purchase your crypto asset, plus any charged transaction fees. Canada employs the adjusted cost basis method of accounting.
This enables you to adjust your cost basis to reflect the real cost of a particular capital item that you have acquired. As a result, you may include expenses associated with selling and acquiring cryptocurrency. This might include exchange fees and gas fees associated with completing the transaction through a network connection.
To figure out if you have a capital gain or loss, subtract your cost basis from the price you sold your cryptocurrency.
5. Understanding Capital Losses
You will not be subject to Capital Gains Tax on any capital losses resulting from your cryptocurrency investments. But don’t just write them off as a terrible time; instead, use them to your advantage to lower your tax liability. It is possible to use your capital losses to minimize your overall tax payment by deducting them from your capital gains for the tax year.
The 50 percent rule for capital gains and losses applies in the same way to taxes owed on your capital gains and losses. This means that you may only claim a deduction for half of your net capital loss in a single tax year.
You can roll losses forward to future financial years to offset future gains if you’ve done all of this and you still have losses left over. Additionally, suppose you do not make any capital gains in a year. In that case, you can carry forward half of your capital losses to use as a counter-balance to any future capital gains.