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The Investor’s Guide to Canada Cryptocurrency Taxes

Having trouble navigating the Canadian tax code?

All across the world, governments are still figuring out how to tax the rapidly-evolving cryptocurrency space. Canada is no exception. Unfortunately, that means crypto investors often end up feeling overwhelmed and confused on how to deal with their tax returns.

In this guide, we’ll break down Canada’s cryptocurrency tax rules based on the latest guidance from the CRA and Revenu Quebec. This article will cover how cryptocurrency is taxed in Canada, how you can report your taxes, and a few simple ways to reduce your tax liability.

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Chapter 1

The basics of cryptocurrency taxation in Canada

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How is cryptocurrency taxed In Canada?

The Canadian Revenue Agency (CRA) treats cryptocurrency as a commodity for tax purposes.

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Typically, cryptocurrency dispositions are subject to capital gains tax. This includes selling or gifting your cryptocurrency, trading it for another cryptocurrency, or using your crypto to make a purchase.

In some circumstances, you may recognize cryptocurrency income outside the form of capital gains. Examples include earning staking income, receiving crypto as compensation for your work, and earning income from an NFT that you created.

Business income vs. capital gain for cryptocurrency taxes

Cryptocurrency activity can produce income tax or capital gain tax depending on what the activity is and whether that activity is treated “as a business” or simply “as a hobby”.

If you are operating “as a hobby”, whether as an investor, or participant within crypto, your sales of crypto assets or other dispositions will be treated as capital gain or loss.

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If you are operating “as a business”, whether as a trader, miner, or otherwise within crypto, your activity will be treated as business income, and you will be subject to income tax.

In Canada,  your income – whether business or hobby –  and your capital gains are taxed differently. While income is fully taxable, only 50% of capital gains are taxable.

Some factors that the CRA uses to determine whether how your cryptocurrency will be taxed include:

  • You operate in a businesslike manner (which may include activities like preparing a business plan and investment decks)
  • You intend to make a profit (even if you’re not likely to do so in the near future)
  • You promote a product or a service

The CRA determines whether a transaction should be treated as business income or capital gains on a case-by-case basis. In some circumstances, even a single transaction can be treated as business income.

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How do I calculate my cryptocurrency capital gains?

To calculate your capital gain or loss on cryptocurrency disposals, you can look at how the price of your assets has changed since you originally received them. You need to know the proceeds of the disposition and the adjusted cost base of the property. Consider the example below.

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In this case, Hannah’s proceeds are $1,500, and her adjusted cost base is $1,000 leaving her with $500 of capital gain. After figuring for the 50% capital gain inclusion rate, her taxable capital gain is $250.

What crypto transactions are tax-free in Canada?

Here are a few examples of cryptocurrency transactions that are considered tax-free in Canada.

  • Holding cryptocurrency
  • Transferring cryptocurrency between wallets
  • Buying cryptocurrency with fiat currency
  • Buying NFTs with fiat currency
  • Borrowing

How much is cryptocurrency taxed in Canada?

The total amount of tax you pay depends on what tax bracket you fall under. Here’s a breakdown of tax levels during the current tax year.

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Remember, 50% of your crypto capital gains will be subject to tax. You may pay additional taxes depending on your province of residence.

Can you avoid crypto taxes in Canada?

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There is no legal way to evade paying taxes on cryptocurrency in Canada. While crypto transactions are conducted anonymously, the CRA does have the right to demand customer data from crypto exchanges. It uses this data to figure out who has crypto-related income that should be reported on taxes.

Cryptocurrency tax breaks in Canada

The following tax breaks are available for all Canadian investors.

  • Capital gain inclusion rate: As mentioned earlier, only 50% of your capital gains are included as taxable capital gains in Canada.
  • Capital losses: Capital losses can be used to offset capital gains (more on this later).
  • Personal tax allowance: In Canada, the first $14,298 of income that you make will be considered tax-free.
  • Spousal tax credit: In cases where the personal tax allowance isn’t fully used, it can be transferred to your spouse. For example, if your partner has no income for the year, they can transfer their full $14,298 credit to you.

How do you cash out cryptocurrency without paying taxes?

Unfortunately, all disposals of cryptocurrency are subject to capital gains tax. However, there are tactics that you can use to reduce your cryptocurrency tax liability.

Tax-free savings account

All Canadian adults are allowed to deposit money into a tax-free savings account (TFSA). While you can’t directly hold crypto in your TFSA, you can hold ETFs that track the price of cryptocurrencies like Bitcoin and Ethereum.

Cryptocurrency business losses

If you’re running a crypto business, any cryptocurrency losses can be deducted from your business income and reduce your income tax liability for the year.

Transaction fees

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Transaction fees from transferring and trading cryptocurrency can be added to your adjusted cost basis and thus help reduce your overall capital gains.

Business deductions

If you are running a cryptocurrency business, you’ll be able to write off associated expenses. For example, a mining business can write off the costs of electricity and equipment.

How do I determine my cost basis?

The CRA requires the Adjusted Cost Basis (ACB) costing method to calculate your gains and losses on your cryptocurrency — unlike the U.S. which allows various methods such as FIFO, LIFO, or HIFO.

Your ACB is the total average cost (in CAD) of each unit of that cryptocurrency at any given time. To better understand how this works, take a look at the example below.

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Chapter 2

Understanding the taxability of specific transactions

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How is buying cryptocurrency taxed?

Buying cryptocurrency with a fiat currency like CAD is considered non-taxable.

How is selling cryptocurrency taxed?

When you sell cryptocurrency, you incur a capital gain or loss depending on how the price of your crypto has changed since you originally received it.

How are crypto-to-crypto trades taxed?

Trading your cryptocurrency for other cryptocurrencies is considered a disposal. You’ll incur a capital gain or loss depending on how the value of the crypto you’re trading away has changed since you originally received it.

Is holding cryptocurrency taxed?

Simply holding cryptocurrency is not considered a taxable event.

How are capital losses taxed?

In Canada, capital losses can be used to reduce any capital gains you had in the year and your tax liability. However, losses cannot be used to offset your other income.

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The 50% inclusion rule that applies to capital gains also applies to capital losses. That means you are allowed to offset half the value of your capital loss against your taxable capital gains.

If you have a net capital loss for the year, generally you can apply your net capital losses against taxable capital gains of the three preceding tax years or any future tax years.

Pro Tip: Canada’s Superficial Loss Rule places some restrictions on writing off capital losses. You cannot claim a capital loss if you buy the same cryptocurrency 30 days prior to or 30 days after the sale.

How are stablecoins taxed?

Despite the fact that they were designed for transactions and not for investments, trading away stablecoin is still considered a disposition subject to capital gains taxes (however, your ‘capital gain’ will likely be close to zero).

How are NFTs taxed?

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At this time, the CRA hasn’t released any guidance on how NFTs are taxed. However, it’s reasonable to assume that they’ll be considered capital assets just like cryptocurrencies. Disposals of NFTs — such as selling them or trading them for other NFTs — are subject to capital gains tax.

If you’ve created your own NFT and earned revenue from primary and/or secondary sales, you’ll recognize business income subject to income tax.

How is DeFi taxed in Canada?

DeFi is a rapidly evolving space and the CRA has yet to release clear guidance on some of the common issues associated with it.

However, it’s reasonable to assume that many of the same rules that apply to cryptocurrency will apply to transactions that take place in a DeFi setting. This includes the following:

  1. Crypto-to-crypto transfers are considered a taxable event
  2. Income from staking and yield farming is treated as income

How is mining taxed?

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Let’s look at how cryptocurrency mining is taxed for businesses and hobbyists.

Mining for business

Coins received from mining when the intention is to make a profit on mining is considered business income. Any income from mined cryptocurrency is based on the fair market value at the time of receipt. In addition, you’ll incur capital gains or losses if you decide to sell your coins.

Any costs associated with mining such as mining hardware or electricity costs can be deducted as business deductions.

Hobby mining

If you are mining cryptocurrency as a hobby, and are not looking to profit from mining, you will not be taxed when you receive your coins,  but you will incur capital gains in the case of a disposal. The mined coins will be considered new assets with a cost basis of zero. Hobby miners are not eligible for business deductions.

Most mining is likely to be considered business activity in Canada, however the CRA has stated that it will determine whether mining operations fall into the business or hobby category on a case-by-case basis. If you’re unsure which category your operation falls under, contact a tax professional.

How are staking rewards taxed?

At this time, the CRA hasn’t released guidance on staking rewards. It’s reasonable to assume that they will be subject to income tax.

How are forks taxed?

It’s reasonable to assume that hard forks will be taxed differently depending on whether you are considered an individual or a business.

If you are an individual, you do not have any income from receiving new tokens resulting from a hard fork. These new tokens are new assets with a cost basis of 0. When you dispose of these coins, you will likely pick up capital gain or loss.

If the fork does not produce a new token and is a continuation of the previous chain, there is no income to report, and you will have the same basis as you had before. Any disposals of these coins result in capital gain or loss.

For businesses, new tokens from hard forks will likely be considered income at the time of receipt.

How are airdrops taxed?

At this time, the CRA hasn’t released guidance on airdrop rewards. It’s possible that for individuals, receiving airdrops will be considered non-taxable. For businesses, it’s likely that airdrop rewards will be taxed as income at the time of receipt.

How are DAOs taxed?

At this time, the CRA has not released any guidance on Decentralized Autonomous Organizations (DAOs). These are decentralized protocols where members hold governance tokens and vote on the community’s future.

Some speculate that DAOs will be taxed as flow-through entities. This means that any income that is passed on to members of the DAO will be subject to business income tax.

Chapter 3

Reporting your crypto taxes

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What do I need to file my crypto taxes in Canada?

To accurately report your taxes, it’s important to keep detailed records of your transactions. The CRA recommends that you keep track of the following information:

  • Date for each one of your crypto transactions
  • The fair market value of each one of your assets when you bought or sold them
  • The amount of tokens you bought, sold, or traded at each transaction
  • Cryptocurrency addresses and wallet information
  • Cryptocurrency addresses of other parties you’ve traded with
  • Exchange records
  • Accounting and legal fees

The CRA recommends that you keep these records for at least six years.

How to report cryptocurrency on your taxes

Capital gains from your cryptocurrency transactions should be reported on Schedule 3 Form. Your business income on the other hand should be reported on T2125 Statement of Business or Professional Activities.

How to report capital 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 crypto for tax purposes

Because transferring cryptocurrency between different wallets and exchanges is so common, it’s often difficult for investors to find information on cost basis that’s needed for tax calculations.

While some investors choose to manually track their transactions using spreadsheets, using crypto tax software can help you save hours of time and effort.

How CoinLedger can help

With CoinLedger, reporting your crypto taxes has never been easier. The platform integrates with hundreds of exchanges and blockchains, so that you can automatically import all of your transactions in minutes.

Here’s how you can generate your crypto tax report with CoinLedger in just 3 easy steps.

Step 1: Connect your CoinLedger account to your exchanges and wallets.

Step 2: Watch the platform calculate your gains, losses, and income!

Step 3: Click the View Report button to download your gains, losses, and income tax reports in CAD.

Once you’re done, you can send your tax report to your tax professional, export it to your tax platform of choice, or submit it yourself!

If you’re interested in getting started, you can sign up for a free account today! See for yourself why more than 300,000 investors across the globe use CoinLedger to make tax season stress-free.

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Frequently asked questions

Let’s cap things off by answering a few frequently asked questions on Canadian cryptocurrency taxes.

  • Can I cash out cryptocurrency without paying taxes?
    MinuPlus
  • Can the CRA track Bitcoin transactions?
    MinuPlus
  • How much is crypto taxed in Canada?
    MinuPlus
  • Can I pay my taxes in Bitcoin?
    MinuPlus
  • How do I claim capital losses on my taxes?
    MinuPlus

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