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.
The basics of how capital gains and income from cryptocurrency is taxed in Canada.
We’ll break down how you can report your income and capital gains from cryptocurrency on your tax return.
How to calculate your tax bill in unique situations — such as if you bought the same cryptocurrency multiple times.
The Canadian Revenue Agency (CRA) treats cryptocurrency as a commodity subject to capital gains tax and income tax.
Capital gains tax: 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.
Income tax: Earning cryptocurrency is subject to income tax. Examples include earning staking income, receiving crypto as compensation for your work, and earning income from an NFT that you created.
If you’re categorized as a trader by the CRA, all your profits from cryptocurrency will be considered income. We’ll break down the difference between a trader and an investor later in the article.
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.
In Canada, only 50% of your capital gains are considered taxable income.
Consider the example below.
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 income is $250.
When you earn cryptocurrency, you’ll recognize income based on the fair market value of your crypto rewards at the time of receipt.
Unlike capital gains, 100% of income from cryptocurrency and other sources is considered taxable.
The CRA can track your cryptocurrency transactions.
Major cryptocurrency exchanges like Binance and Coinbase are registered with FINTRAC (Financial Transactions and Reports Analysis Centre of Canada). FINTRAC reviews transactions to identify illegal activities like money laundering and tax fraud.
In addition, cryptocurrency transactions on blockchains like Ethereum and Bitcoin are publicly visible. Tax agencies all over the world have worked with contractors like Chainalysis to analyze the blockchain and match ‘anonymous’ wallets with known investors.
Here are a few examples of cryptocurrency transactions that are considered tax-free in Canada.
The total amount of tax you pay depends on what tax bracket you fall under. Here’s a breakdown of tax rates during the current tax year.
Remember, you can find your total taxable income for the year by adding 100% of your income and 50% of your capital gains for the year.
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.
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.
Some factors that the CRA uses to determine whether how your cryptocurrency will be taxed include:
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.
There is no legal way to evade paying taxes on cryptocurrency in Canada. Tax fraud is a serious crime that carries the penalty of up to 200% of taxes evaded as well as potential jail time.
While there’s no way to legally evade your cryptocurrency taxes, there are tactics that you can use to reduce your cryptocurrency tax liability.
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 losses can offset capital gains and reduce your tax liability.
Transaction fees from transferring and trading cryptocurrency can be added to your adjusted cost basis and thus help reduce your overall capital gains.
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.
You can use the following tax breaks to further minimize your crypto tax liability.
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:
The CRA recommends that you keep these records for at least six years.
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.
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.
In Canada, the tax year runs from January 1 to December 31. You should report all of the taxable transactions during the year on your tax return.
Typically, the deadline for reporting your taxes to the CRA is April 30 after the end of the tax year.
To calculate your capital gains and losses, you’ll need to know your cost basis — your original cost for acquiring your cryptocurrency. However, calculating your cost basis can be difficult if you acquired the same cryptocurrency at multiple price points.
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.
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 you can keep records of your transactions manually, this can take serious time and effort and may be difficult if you are using multiple exchanges or have a large volume of transactions.
While some investors choose to manually track their transactions using spreadsheets, using crypto tax software like CoinLedger can help you save hours of time and effort. Just plug in your wallets and exchanges and CoinLedger can generate a CRA-compliant tax report in minutes!
Buying cryptocurrency with a fiat currency like CAD is considered non-taxable.
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.
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.
Simply holding cryptocurrency is not subject to tax.
Transferring cryptocurrency between wallets that you own is not considered a taxable event.
However, you should keep a record of your wallet-to-wallet transfers so you can easily calculate your capital gains and losses in the case of a future disposal.
Using your cryptocurrency to make a purchase is considered a disposal event. You’ll incur a capital gain or loss depending on how the price of the crypto you’re using to make the purchase has changed since you originally received it.
In Canada, capital losses can be used to reduce any capital gains you had during the year — which in turn, reduces your tax bill. However, losses cannot be used to offset your other income.
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, you can apply your 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.
The CRA has not given guidance on whether lost and stolen cryptocurrency can be deducted on your tax return.
However, the CRA does allow taxpayers to deduct losses from capital properties in the case of theft. It’s likely that stolen cryptocurrency can be deducted under the same rules.
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.
Selling/trading away NFTs: Disposals of NFTs — such as selling them or trading them for other NFTs — are subject to capital gains tax.
Buying NFTs with cryptocurrency: Buying NFTs with cryptocurrency is subject to capital gains tax. In this case, you’ll incur a capital gain or loss depending on how the price of your crypto has changed since you originally received it.
Creating NFTs: 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.
DeFi is a rapidly evolving space. At this time, the CRA has yet to release guidance on the tax treatment of DeFi transactions.
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:
Cryptocurrency mining rewards are taxed differently depending on whether you are mining as a business or as a hobbyist.
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.
When you mine cryptocurrency with the intention to make a profit, your rewards will be taxed as income based on its value at the time of receipt. If you dispose of your rewards in the future, you’ll incur a capital gain or loss depending on how the price of your crypto has changed since you originally received it.
Any costs associated with mining such as mining hardware or electricity costs can be treated as business deductions on your taxes.
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. Instead, you will incur capital gains in the case of a disposal. Your mined coins will be considered new assets with a cost basis of zero. Hobby miners are not eligible for business deductions.
At this time, the CRA hasn’t released guidance on staking rewards. It’s reasonable to assume that cryptocurrency earned from staking will be subject to income tax based on its fair market value at the time of receipt.
In addition, disposals of staking rewards are subject to capital gains tax. You’ll likely incur a capital gain or loss depending on how the price of your crypto changed since you originally received it.
Giving a cryptocurrency gift is considered a disposal subject to capital gains tax. You’ll incur a capital gain or loss depending on how the price of your crypto changed since you originally received it.
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 will not recognize 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.
At this time, the CRA hasn’t released guidance on airdrop rewards. Based on CRA guidance on hard forks, it’s likely that receiving airdrops will be considered non-taxable.
However, you’ll likely incur a capital gain or loss when you dispose of your airdrop rewards depending on how its price has changed since receipt.
For businesses, it’s likely that airdrop rewards will be taxed as income at the time of receipt.
At this time, the CRA has not released any guidance on Decentralized Autonomous Organizations (DAOs) — blockchain-based organizations where tokenholders vote on governance decisions.
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.
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).
With CoinLedger, reporting your Canada 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 create a free CoinLedger account today! See for yourself why more than 400,000 investors across the globe use CoinLedger to make tax season stress-free.
Get Started For FreeLet’s cap things off by answering a few frequently asked questions about Canadian cryptocurrency taxes.
