Taxes on Cryptocurrency in Canada
Taxes on cryptocurrency and NFTs in Canadea are not fundamentally different from other investment assets. The way crypto and NFT taxes in Canada work is that the CRA treats cryptocurrency the same way it treats commodities.
You must report all income made from NFTs and cryptocurrency on your taxes. That includes offshore crypto income, income that is paid in cryptocurrency, mined cryptocurrency, earnings made from staking crypto, donations of crypto, and transactions in which you buy goods or services with crypto.
How Crypto is Taxed in Canada
There are two ways that filing crypto taxes 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 the income is considered business income or a sale of capital property.
Income tax applies to the full amount of profit generated from NFT and cryptocurrency trading if you trade cryptocurrency 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 who trade frequently enough may have their earnings considered business income.
Capital Gains Tax
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 cost of acquisition. Capital gains taxes 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.
How the CRA Tracks Crypto
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 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 crypto, 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 crypto capital gains tax:
There are no short or long-term capital gains taxes in Canada, or any unique rates that apply. 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 this year. For example, if you sold another cryptocurrency at a loss earlier, you can deduct it from your gains.
Finally, add your gain to your total taxable income for the year and apply the federal and provincial tax rates.
How to calculate crypto income tax:
When you earn crypto, 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 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 CRA 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 advice on filing crypto taxes in Canada if you want to deduct crypto that has been stolen, but cryptocurrencies are considered capital property and these rules could 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 Taxes 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 crypto, 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 that you have mined is again subject to context. If you mine 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, you will have to pay income tax on the fair market value of what you earn at the time you acquire it.
Spending Crypto Taxes in Canada
One of the most important Canadian 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 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 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 income tax.
Paying Taxes on Crypto in Canada
You must pay the full amount of taxes due in Canada on the deadline set by the CRA. 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.
Canadian Crypto Tax Breaks
Half your Crypto Gains
You only pay taxes on half of the profits you earn from crypto if you can claim them as capital gains.
Personal Tax Allowance
Each year, the CRA sets a personal tax allowance. You do not pay tax on the first set amount of income that you earn.
Spousal Tax Credit
If you do not use up all your personal tax allowance, you can transfer part of it to your partner if you are married or in a common law relationship.
Reporting Capital Losses
If you lost money on another investment, you can report and deduct that loss from your capital gains.
When you transfer crypto from one wallet to another (that also belongs to you), you do not have to worry about paying crypto taxes.
When you donate crypto to a registered charity, the charity can issue a receipt for the value of the crypto when you purchased it. You will have to pay taxes on the fair market value at the time that you donate the crypto.
Decentralized Autonomous Organization (DAO)
Creating a DAO is not a taxable event. Members who use a DAO will likely have to pay income taxes on any profits earned individually.
HODL, in short, refers to buying and holding crypto indefinitely. You do not pay taxes for holding on to cryptocurrency unless it is earning a passive income.