Cryptocurrency is treated as a commodity for tax purposes
Any income from the sale or transfer of such cryptocurrency is treated either as business income or as a capital gain. Similarly, losses are either treated a a business loss or capital loss and can be set off against business profits or capital gains, respectively
Taxable transactions occur in the following situations:
- You sell or make a gift of cryptocurrency
- You trade or exchange cryptocurrency, including disposing of one cryptocurrency to acquire another cryptocurrency
- You convert the cryptocurrency to government issued currency, such as Canadian or US dollars
- You use cryptocurrency to buy goods and services
Are you an investor or in the business of trading cryptocurrencies?
The determination of whether you are conducting a business is somewhat subjective. Gains made through trading cryptocurrencies are considered business income and 100% of the gain is taxable as business income. Typically, the following are considered signs that you are in the business of trading cryptocurrencies:
- You show that you intend to make a profit, even if you are unlikely to do so in the short-term
- You conduct yourself like a business, focusing most of your time in trading cryptocurrencies
- You have an inventory of various cryptocurrencies
If you are an investor and occasionally buy or sell cryptocurrencies, then those transactions will be fit under the capital gains taxation rules, i.e. you only need to report 50% of the gain in your taxable income, and capital losses on cryptocurrencies can be used to reduce the amount of capital gains in the year that the cryptocurrency is sold, or carried forward indefinitely.
Cryptocurrency are acquired by
- buying them on a cryptocurrency exchange,
- receiving them for the purchase of a product or service
- receiving another cryptocurrency by trading it for another
If you buy cryptocurrency and later sell or dispose of it, you have to keep detailed records of your transactions, including:
- The date of the transactions
- Receipts for the purchase or transfer of cryptocurrency
- The fair market value of the cryptocurrency in Canadian dollars when purchased, and when sold
There are various types of software that can be used to trade and track cryptocurrency trades. We encourage you to explore the alternatives to keep track of the details.
Additional information is available at https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/compliance/digital-currency/cryptocurrency-guide.html
Please call us at 604 558 2234 to learn more.
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