Introduction
Since 2008, the crypto asset industry has witnessed a dramatic expansion of asset types, scales, and technology. Due to the evolving nature of underlying technology and increased use of assets, the CRA, or Canada Revenue Agency, continues to update its tax guidelines.
Thus, taxpayers are subjected to capital gains and business income tax after selling and mining cryptocurrency. Similarly, cryptocurrency is segmented under the category of taxable income.
So, anyone who wants to disappoint themselves by overestimating their profits and forgetting about taxes needs to have more money than you have.
So, if you plan to invest in cryptocurrency in Canada, you must know when and how they are taxed.
Explore below!
When Is Cryptocurrency Taxed In Canada?
Canadians do not typically have to pay taxes when making cryptocurrency investments. Therefore, doing any of the following will put you under tax liability. They are:
- Selling cryptocurrency.
- Gifting cryptocurrency.
- Exchanging and trading cryptocurrency. This includes converting between cryptocurrencies.
- Buying goods and services with cryptocurrency.
- Converting from cryptocurrency to CAD or any other fiat currency.
Ways Cryptocurrency Transactions Are Taxed
Looking at technical terms for segmenting cryptocurrency transactions on taxes can be confusing.
In order to clarify the taxation, consider the below mentioned situations and how they would be taxed.
1. Mining Currency
Mining currency refers to the situation when you use a digital medium to complete mathematical issues and confirm cryptocurrency transactions. Similarly, it anticipates how you would classify depending on whether you consider mining as a hobby or business.
This is further subjected to capital gains tax if you prefer to invest in cryptocurrency while living in Canada.
One of the significant benefits of this technique is that the cost basis is zero, and the CRA does not allow dedication.
Furthermore, businesses are segmented under the inventory category. Thus, crypto needs to be valued at acquisition cost or at fair market valuation.
2. Day Trading Currency
When someone engages in daily trading of cryptocurrency, they buy and sell it over short periods to make a profit.
In Canada, the Canadian Revenue Agency (CRA) views day trading activities as a form of commercial income.
Therefore, this classification refers to the requirement that any net profits earned from day trading cryptocurrencies be reported on one’s income tax return after deducting any net losses.
Similarly, the approach ensures that you are taxed according to your income generated through these trading activities, aligning with the CRA’s regulations on income from business activities.
3. Transferring Currency Between Wallets
In most jurisdictions, transferring cryptocurrency between two wallets, exchanges, or accounts you own does not trigger a tax event. However, it’s crucial to keep detailed records of these transfers.
This is because of the cryptocurrency’s original purchase price. Often known as the cost basis, it will be needed when you eventually sell or dispose of the asset to calculate any capital gains or losses for tax purposes.
Thus, maintaining accurate records ensures you can accurately report and potentially minimize your tax obligations when the time comes.
If you are new to Canada and interested in making investments in cryptocurrency, it is vital that you gain insights on canada crypto license.
4. Selling Cryptocurrency For Fiat
When selling cryptocurrency for fiat currency, such as Canadian dollars (CAD), the transaction is subject to taxation as a capital gain. This means that if the value of the cryptocurrency has boosted from the time of purchase to the time of sale, the profit is taxable.
Similarly, it is important to note that each cryptocurrency transaction must be reported separately for tax purposes.
In order to maintain the transaction records accurately, you will need to calculate the cost basis for each one. The cost basis is determined by the cryptocurrency’s price at the time of purchase and at the time of sale.
5. Buying Currency
There are no taxes for buying cryptocurrency either.
If you are planning to buy cryptocurrency, then intend to hold on to it and maintain an accurate record. The value at the time of purchase will be necessary to calculate the cost basis in the future when or if the cryptocurrency is sold.
Bottom Line
Thus, one of the most significant points to consider when investing in cryptocurrency is that it is taxable.
This is usually because these types of income are generally taxable and are still relatively new, especially with a tax accountant specializing in cryptocurrency.
However, the easiest way is to make sure that you are following proper regulations and is to have the experts complete your taxes.
