If you have cryptocurrency losses this year, you may have the opportunity to save thousands of dollars on your tax bill.
In this guide, we’ll break down everything you need to know about how cryptocurrency losses are taxed in Canada. By the time you’re finished reading, you’ll learn how to save money with crypto losses and report your losses on your tax return.
How is cryptocurrency taxed in Canada?
Before we jump into how crypto losses are taxed, let’s review the basics of cryptocurrency taxes.
In Canada, cryptocurrency is subject to income and capital gains tax.
When you earn cryptocurrency, 100% of your income is considered taxable income. When you recognize crypto capital gains, 50% of your gain is considered taxable income.
For more information, check out our
. complete guide to how cryptocurrency is taxed in Canada Do you have to report crypto losses to the CRA?
While all disposals of cryptocurrency should be reported to the CRA, it’s important to remember that cryptocurrency losses can actually reduce your tax bill!
Can crypto losses reduce my tax bill?
Cryptocurrency losses can offset capital gains from stocks, cryptocurrencies, and other assets. If you have a net loss for the year, you can offset capital gains in future tax years or the previous three tax years.
Just as 50% of cryptocurrency capital gains are considered taxable, 50% of the value of cryptocurrency losses can be used to offset gains.
cannot be used to offset regular income (outside capital gains) for the year.
Remember, you have to ‘realize’ your loss to reduce your tax bill. This means selling your crypto, trading your crypto for another crypto, or using your crypto to make a purchase.
If you have an unrealized loss (you are continuing to hold your cryptocurrency while it is in a loss position), you cannot claim a loss on your tax return.
What is cryptocurrency tax-loss harvesting?
Because of the tax benefits of crypto losses, some investors choose to intentionally sell their cryptocurrency at a loss to reduce their tax bill. This is known as
Tax-loss harvesting has been used in the world of stocks and equities for many years. However, this tax-reduction strategy works uniquely well with cryptocurrency. Because crypto is so volatile, you’ll likely have multiple opportunities to realize losses before the end of the year.
What is the Superficial Loss Rule?
Canada has a Superficial Loss Rule in place to prevent ‘wash sales’. This is the practice of selling your cryptocurrency, claiming a capital loss, and buying back the same cryptocurrency shortly after.
The Superficial Loss Rule states that you cannot claim capital losses on cryptocurrency and other assets if you buy back the same asset 30 days before or after your sale.
What is the deadline for tax-loss selling in Canada?
The deadline to report your crypto losses to the CRA is
April 30th after the end of the tax year.
However, if you want to offset your capital gains in the same tax year, you’ll need to realize your cryptocurrency losses before
Of course, you shouldn’t wait until the deadline to realize your capital losses. You’ll likely have multiple opportunities throughout the year to realize losses — so you should keep a close eye on your portfolio.
What are other ways I can reduce my crypto tax bill in Canada?
Looking for more ways to reduce your crypto tax bill? Here are a few strategies that can help you save money.
Take profits in low income years: The lower your income for the year, the lower the tax you’ll pay on your cryptocurrency transactions. Hold cryptocurrency in a TFSA/RRSP: You can hold ETFs that track the price of cryptocurrencies like Bitcoin and Ethereum in a tax-free savings account (TFSA) or registered retirement savings plan (RRSP). Take out a crypto loan: Want to convert your cryptocurrency into fiat? Instead of selling your cryptocurrency and incurring capital gains, take out a non-taxable loan using your crypto as collateral.
For more information, check out our
. guide on how to reduce your tax bill in Canada How to report your crypto losses on your tax return
Capital losses can be reported alongside capital gains on Schedule 3. If you wish to carry your current year’s net capital losses into a prior tax year, you can use
. Form T1A - Request for Loss Carryback
If you wish to carry over a previous year’s net capital loss into the current year, you can claim it on line 25300 of your tax return.
How to track your capital gains and losses in Canada
If you’re using multiple wallets and exchanges, tracking your capital gains and losses can be difficult. You can maintain a spreadsheet that contains details of all of your crypto transactions, but this takes serious time and effort.
like CoinLedger can help simplify the process. The platform connects to exchanges like Coinbase and wallets like MetaMask so you can report your taxes in minutes. Crypto tax software Get started with CoinLedger More than 300,000 investors around the globe use CoinLedger to take the stress out of tax season. . Get started with a free account today