Canada is one of the rising hubs for the crypto industry with more than 1.2 million people owning crypto. But what happens when it's time to cash out the cryptocurrency? 

Whether you're looking to sell a portion of your bitcoins or cash out your crypto completely, it's crucial to know the right approach. With so many options available and new regulations being introduced every year, it can be challenging to know where to start.

In this guide, you'll find everything you need to know about cashing out crypto in Canada without paying more taxes in 2023 so that you can enjoy the value of your assets with confidence.

When Do You Have To Pay Taxes On Crypto In Canada?

Before we dive into how to cash out your cryptocurrency in Canada, it's important to understand when you have to pay taxes on your crypto. 

The Canada Revenue Agency (CRA) considers cryptocurrency as a commodity which is subject to tax. Any profits gained from cryptocurrency transactions are taxable as:

• Business income which is 100% taxable
• Capital gain which is 50% taxable

How you will be taxed by the CRA depends on whether you are conducting these transactions as a business or as an individual investor. 

Here are some of the following signs that can make you seen as a business:

• Investing for commercial reasons and in a commercially viable way
• Undertaking investment activities in a business-like manner (e.g. preparing a business plan or acquiring capital assets)
• Promoting a product or service
• Intending to make a profit

Whether you will be treated as a business or not is decided on a case-by-case basis by the CRA. If your crypto income falls under business income, you will have to pay taxes on 100% of your profits. If you are an individual investor, you will pay taxes on 50% of your capital gains.

You may be subject to crypto taxes if you:

• Exchange your cryptocurrency for fiat currency
• Trade your crypto token for another crypto
• Purchase any products or services with cryptocurrency
• Gift your crypto

What Are The Options For Cashing Out Cryptocurrency In Canada?

You are probably wondering about the best options to cash out your bitcoin or other cryptocurrencies. 

Here are the top 4 ways to consider for cashing out your crypto in Canada.

Sell Your Crypto On An Exchange

One of the easiest ways to cash out your cryptocurrency in Canada is by selling it on a cryptocurrency exchange. These are online platforms where you can trade your cryptocurrencies for fiat (e.g. Canadian dollars) or another crypto. 

Some popular exchanges operating in Canada include Coinbase, Bitbuy, and Gemini. However, crypto exchanges charge a certain fee for your transactions which may vary across platforms.  

Use Cryptocurrency Brokers

If you are not sure how to trade your crypto directly on an exchange, a convenient option is to use a cryptocurrency broker service to trade your crypto.

These brokers act as intermediaries between buyers and sellers and help you sell your cryptocurrency at a good price. All you have to do is enter the amount of crypto you want to trade and the currency you want to receive.

Several exchanges provide cryptocurrency broker services in Canada including NDAX and Netcoins. The charged fee is on the higher side than exchanges but you get more convenient services.

Cash Out Your Crypto Using Bitcoin ATMs

Bitcoin ATM is one of the easiest ways to cash out your cryptocurrency, simply by entering your wallet’s public address or scanning a QR code. You can also buy bitcoin using cash or digital transfers which will be delivered to your wallet. As of 2022, Canada has around 1,051 Bitcoin ATMs.

It may take anywhere from a few minutes to several hours to complete these transactions on the blockchain. Once your bitcoins are sold, you can receive physical cash or send the fiat amount to a digital wallet. 

The machines are costly to use and come with transaction limits. Consider this before you sell your bitcoin through these ATMs to get the best value for your assets. 

Trade In A Peer-To-Peer Marketplace

Peer-to-peer marketplaces is the best way to sell your cryptocurrency directly with traders from the same jurisdiction. This lets you trade in the same currency, avoiding any fluctuations in exchange rates. 

Some popular peer-to-peer marketplaces in Canada like LocalBitcoins or Paxful connect buyers and sellers directly for cryptocurrency trades. 

Since you are trading your crypto directly and not through any intermediary, you can set your own terms for the trades, for instance, the price at which you want to trade your crypto.

However, it is essential to be cautious when trading on these marketplaces and only deal with reputable buyers and sellers.

How To Cash Out Crypto Without Paying Taxes In Canada?

While it’s not legally possible to cash out crypto without paying taxes in Canada, there are several tricks to minimise your crypto tax bills. Let’s look at each of them in detail.

HODL Your Crypto

Canada has a capital gains tax, which means that you will be taxed on the gains you make when you dispose of your cryptocurrency. 

However, if you hold onto your cryptocurrency, you can enjoy the appreciating value of your assets without paying any taxes on them. 

You can realise the profits earned on your assets in a low-income year to avoid taxes completely for up to $14,398 of income.

Invest As A Trader

As per CRA, there are two types of taxes applicable on crypto: business income and capital gains. If the gains from your trades qualify as business income, you are taxed on 100% of your profits. Whereas, if you are an individual investor, you only pay taxes on 50% of your profits. 

Although there are no defined rules on how to be seen as an investor by the CRA, it’s a good idea to avoid repetitive investments and short-term gains.

Harvest Your Capital Losses

If you have incurred losses in your cryptocurrency investments, you can use them to offset your capital gains and reduce your tax liability. This is known as tax-loss harvesting.

This involves selling your losing investments to offset the gains you have made in a given financial year. You can use a crypto tax software like Kryptos to automatically find any tax-loss harvesting opportunities in your portfolio throughout the year and reduce your overall tax bill. 

Use your TFSA or RRSP

Another way to cash out your cryptocurrency without paying taxes is by using–

• Tax-Free Savings Account (TFSA): You cannot hold cryptocurrency like BTC, ETH, or any other token directly in your TFSA. However, you can use crypto ETFs or other crypto funds (e.g. crypto mining stocks) listed on the Canadian stock exchange to keep your digital assets in a tax-free savings account. TSFA comes with a contribution limit of $6000 for the 2022 tax year and you must be above 18 years of age.

• Registered Retirement Savings Plan (RRSP): You can add funds to the RRSP worth 18% of your previous year's income or $29,210 for the 2022 tax year – whichever is lower. You can then claim tax deductions for the amount you add to this account, reducing your overall tax bill.

Take A Loan With Your Crypto

Instead of directly disposing of your crypto that is subject to capital gains tax, you can take a loan against your crypto assets which is not considered a taxable event.

However, your assets may be liquefied if the crypto value drops significantly. Consider all market-related risks before opting for a crypto loan.

How Kryptos Can Help You Pay Less Taxes In Canada?

You can cash out your cryptocurrency in Canada using the above ways such as selling it on an exchange or using Bitcoin ATMs. However, it is essential to be aware of the tax implications of these transactions and to explore options to reduce your tax liability. 

Keeping track of all of this manually is possible, but you may miss out on taxes or overpay them. Kryptos lets you track all your crypto transactions automatically – identifying tax-saving opportunities, preventing calculation errors, and managing your crypto taxes automatically. 

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You can also generate tax reports as per the guidelines defined by the CRA. All you need to do is add your wallet’s public address to the platform and let it automatically manage your crypto portfolio and applicable taxes. To learn more, Sign Up Now for free.

FAQs

1. What is the cheapest way to withdraw crypto from Canada?

The cheapest way to cash out your crypto in Canada is to use exchanges with minimal fees to sell your assets. Exchanges like Coinberry charge no funding and withdrawal fees while Bitbuy charges only 0.1% to 0.2% fees while selling your bitcoin and 1% withdrawal fees.

2. How do I cash out my crypto for cash?

There are primarily four ways to cash out your crypto in Canada: crypto exchange, crypto brokers, bitcoin ATMs, and peer-to-peer marketplaces. 

3. How do I avoid crypto tax in Canada?

While there’s no legal way to completely avoid taxes in Canada, you can use these tips to save taxes on your crypto transactions:

• Hold your crypto and dispose of it in a low-income year
• Be seen as an individual trader rather than a business to save 50% on your capital gains
• Leverage tax-loss harvesting to offset your capital gains
• Use TSFA or RRSP accounts for tax-free crypto savings
• Take a loan with your crypto as the collateral

4. Is crypto income taxable in Canada?

Crypto is viewed as a commodity by the CRA and any income from the disposal of crypto is subject to two types of taxes: capital gains tax and business income.

5. How do I cash out a large amount of crypto in Canada?

The most convenient way to cash out your crypto is to use crypto exchanges or brokers. However, they charge you a specific fee which is generally a percentage of your transaction amount. 

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All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!