Crypto Guide: Crypto Tax in Canada

Taxes on Crypto in Canada

Taxes on NFTs and crypto in Canada are not fundamentally different from other investment assets. The way NFT and cryptocurrency tax in Canada works is that the CRA treats cryptocurrency the same way it treats commodities.

You must report all income made from NFTs and crypto on your taxes in Canada. That includes offshore crypto income, income that is paid in cryptocurrency, mined cryptocurrency, crypto gains from mining, earnings made from staking crypto, donations of crypto, and transactions in which you buy goods or services with crypto.

How Canada Taxes Crypto Gains

There are two ways that filing crypto taxes in Canada works. When you file your NFT or crypto taxes in Canada, you will either have to pay the capital gains tax or income tax. It depends on whether your cryptocurrency income is considered business income or a sale of capital property.

Crypto Income Tax Canada

Income tax applies to the full amount of profit generated from NFT and cryptocurrency trading if you are crypto trading frequently enough for it to be considered a business activity. It does not have to be your main source of income to count. Even hobbyists in Canada crypto trading frequently enough may have their earnings considered business income.

Capital Gains Tax on Crypto in Canada

Usually, taxpayers pay capital gains taxes on profits from the sale of assets and property. The profit is the difference between the sale price and the cost of acquisition. Capital gains taxes can also apply to property sales, equities, commodities, and other assets, including cryptocurrency.

Importantly, capital gains taxes only apply to half of the profit earned from the sale. In addition, capital losses (i.e., you lost money on the sale of a different asset) can be claimed against capital gains, further reducing your tax bill. This also applies to crypto gains tax in Canada.

How the CRA Tracks Cryptocurrency Tax in Canada

In its efforts to enforce Canadian tax laws on cryptocurrency, the CRA has developed a number of tools it can use to track cryptocurrency. All money service businesses are now required to report transactions of $10,000 and greater to the CRA. This includes crypto transactions, such as those done on crypto exchanges. The CRA has also compelled some crypto wallet companies to provide customer information on high-value accounts. Finally, the CRA also works with a number of exchanges to obtain information about crypto transactions.

Crypto Tax Rates in Canada

There are no special crypto tax rates in Canada. The Canadian tax on cryptocurrency aligns with your marginal tax rate, including both federal and provincial rates. Claiming credits and available deductions can reduce your marginal tax rate, but the taxes you pay are the same as you would for all income.

If you sell a service or goods in exchange for cryptocurrency, GST/HST will apply to the transaction.

How to Calculate Crypto Tax in Canada

Preparing to pay tax on NFT or cryptocurrency in Canada will help you manage your finances and keep cryptocurrency trading profitable. The challenge is calculating crypto tax in Canada, and it can change as your earnings shift throughout the year.

How to Calculate Canadian Crypto Capital Gains Tax

There are no short or long-term capital gains taxes in Canada or any unique rates that apply, unlike in the US. To calculate your crypto capital gains tax, first calculate the difference between your sale price and the price you paid to acquire the crypto. The difference is your profit.

The tax only applies to half of that profit. The next step is to deduct any capital losses you have experienced in the calendar year. For example, if you sold another cryptocurrency at a loss earlier, you can deduct it from your gains.

Finally, add half of your crypto gains (after having deducted losses) to your total taxable income for the year and apply the federal and provincial tax rates.

How to Calculate Crypto Income Tax in Canada

When you earn cryptocurrency, whether it is from mining, staking, or accepting payment in cryptocurrency, you must report it as income at the fair market value for the currency at the time of the transaction.

If you must report proceeds from the sale of cryptocurrency as income because you trade frequently, you only consider the profits as income. This amount, after deducting any applicable appropriate expenses,  is added to all other income and revenue you earn in a year, and the appropriate provincial and federal tax rates apply.

Stolen or Lost Crypto in Canada

The Canada Revenue Agency does not yet have specific guidance on how to report lost or stolen crypto, although under current rules, taxpayers can deduct a capital loss due to the theft of other capital property.

You may need expert crypto tax advice on filing crypto taxes in Canada if you want to deduct crypto that has been stolen, but cryptocurrencies are considered capital property, and the same rules regarding stolen capital property of other types may apply.

How to Report Taxes on Crypto in Canada

Taxpayers can report taxes on crypto in Canada the same way they would any other income or earnings from investments. When you file your tax return with the CRA, include all of your cryptocurrency earnings as well.

Canada Crypto Tax Rules: Canadian Cryptocurrency Tax Laws

Crypto Trading Tax in Canada

Frequent crypto trading can result in paying taxes not as capital gains but as business income, or part of your general income tax. There is no clear-cut guide that will tell you when trades are too frequent to count as capital gains. When it comes to cryptocurrency, this can be complicated by the fact that buying goods or services with crypto counts as a taxable event.

Crypto Mining Taxes in Canada

The tax on cryptocurrency mining is again subject to context. If you are mining crypto as a hobby, you may only have to report the income when you dispose of it (sell, donate, or trade). However, if you mine an amount significant enough to be considered a business activity, your crypto mining tax in Canada will have to be paid as income tax on the fair market value of what you earn at the time you acquire it, or if the mining is part of your crypto business activities than the crypto mined may form part of your inventory and will be taxable when it is sold.

Spending Cryptocurrency and Crypto Tax Laws in Canada

One of the most important Canadian crypto tax laws regarding crypto is that you must pay taxes on crypto when you spend it to purchase something else. You must record the fair market value of the crypto you spend at the time of the transaction and record it as income or a capital gain when you file your Canadian taxes.

Filing Crypto Taxes in Canada

Filing crypto taxes in Canada can be complicated, and you may want the help of a CPA. You can reduce your Canadian crypto taxes by making sure you have applied all of the deductions and claimed all of the credits for which you are eligible. 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.

Paying Taxes on Crypto in Canada

You must pay the full amount of taxes due in Canada on the deadline set by the Canada Revenue Agency. For businesses, the deadline is three months after the end of your tax year. Check with the CRA or your accountant to find out when you need to pay your taxes in full. Late payments come with steep penalties and interest charges.