Cryptocurrency Trading and Taxes in Canada: What You Need to Know

If you're feeling confused about the cryptoverse and wondering how to handle taxes on your digital assets in Canada, you're not alone! Complex tax obligations and legal compliances cause thousands of crypto enthusiasts to face the same dilemma.

To help you out, we have curated a detailed guide for cryptocurrency trading and what it means for taxes in Canada. We also discuss strategies to help you minimise your cryptocurrency taxes.

Why It’s Important To Understand Cryptocurrency Taxes in Canada

The Canada Revenue Agency (CRA) considers cryptocurrency as a commodity for tax purposes. This means your crypto asset is subject to either income tax or capital gains tax depending on how it is used. 

It’s not possible to avoid these taxes and failing to comply with the rules could result in penalties or legal consequences. However, if you are not aware of the latest regulations in the tax space, you may miss out on taxable transactions or overpay your taxes.

How Is Cryptocurrency Taxed In Canada?

Cryptocurrency in Canada is considered a commodity which is subject to taxes. You may have to pay crypto taxes if you dispose of your crypto in the following ways:

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

The profits you gain from cryptocurrency can be classified as:

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

Taxation Rules for Cryptocurrency Traders In Canada

You do not have to pay taxes for buying or holding cryptocurrency in Canada. You are subject to capital gains or business income taxes on selling your crypto, mining crypto, or other crypto-related activities.

Whether or not the CRA will treat you as a business is decided on a case-by-case basis. For business income, you will have to pay taxes on 100% of your profits. Whereas, if you qualify as an individual investor, you will pay taxes on only 50% of your profits.

As per CRA, these signs can make you seen as a business:

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

When Do You Have To Pay Capital Gains Tax In Canada?

Any profits you make from disposing of your crypto are considered capital gains for individuals. You may be subject to capital gains taxes in the following disposal cases:

• Selling your crypto for fiat
• Trading your crypto for another crypto
• Spending your crypto for purchasing goods or services
• Gifting your crypto

The CRA explains that you do not have to pay taxes on 100% of your profits if you are an individual – you only pay tax on half of your net capital gains for a given tax year.

The capital gains tax rate is the same as the federal tax rate and provincial and territorial tax rates. 

Here’s the federal tax rate in Canada for the tax year 2022 and 2023:

For more details on provincial tax rates, refer to our blog here.

When Do You Have To Pay Business Income Tax In Canada?

If disposing of cryptocurrency is seen as part of a business by the CRA, the profits you make on the disposition or sale are considered business income and not capital gain.  

In this case, you have to pay taxes on 100% of your profits. The business income tax rate remains the same as the federal tax rate and provincial tax rate.

Some common business income examples include:

• Mining crypto
• Staking crypto for rewards
• Trading your crypto

Taxation of Crypto Mining And Staking In Canada

The income tax treatment for cryptocurrency mining varies depending on whether the mining activities are a personal activity of the miner (e.g. a hobby) or a business activity. This is decided on a case-by-case basis by the CRA. 

• You do not pay taxes when you receive crypto by mining

• You are subject to capital gains tax or business income when you make any profit by disposing of your mined crypto

The taxation rules for mining, staking, and lending your crypto and tax rates remains constant as discussed above. You can use crypto tax software like Kryptos to automatically track all your transactions and calculate the applicable taxes as defined by CRA.

Taxation Of Crypto Derivatives, Margin Trading, and Other CFDs

How you will be taxed by the CRA depends on whether you are trading as an individual investor or a business. In both cases, you are not subject to taxes when you open a position. However, when you close your position, you are subject to tax as:

• 50% of the profits for a personal investor
• 100% of the profits for a professional day trader

If you incur any capital losses in the trade, you can claim them to offset your capital gains. Any loss in the business income can be used to offset income from other sources.

Reporting Cryptocurrency Trading Income and Losses

If you are a cryptocurrency trader in Canada, you must report your trading activities to the CRA. This includes reporting your cryptocurrency trading gains and losses on your tax return. 

You can file your crypto tax using:

• Schedule 3 Form to report your capital gains and losses
• Form T2125 to report your crypto business income 
• Form T1135 if you are a Canadian resident holding crypto outside the country (if the total cost of your foreign property exceeds $100,000)

You can offset any realised capital gains using the capital losses you have incurred for a given financial year. It cannot be used to offset income from other sources, such as employment income. You can carry forward any excess capital losses for up to three years.

Strategies to Minimise Cryptocurrency Taxes

There are several strategies that cryptocurrency traders can use to minimise their taxes including:

Hold Your Crypto

The longer you hold a cryptocurrency, the more likely it is to be subject to capital gains tax rather than income tax. Instead of paying taxes on your entire profits, you will have to pay taxes on only 50% of your capital gains.

Tax Loss Harvesting

You can use tax loss harvesting by selling your losing investments to realise a capital loss and use it to offset your gains. This strategy can help to lower your tax bill.

Take Profits In A Low-Income Year

This reduces your overall taxable income and in turn, your tax liability. For instance, if you cash out your crypto profits during a year when your total income is less than $15000 (from 2023 onwards), you do not have to pay any taxes.

Deductible Expenses for Cryptocurrency Trading

You may be able to deduct expenses related to your cryptocurrency trading, such as transaction fees and software costs. You can also use any realised losses in your business income and claim them as expenses.

Wrapping Up

Understanding cryptocurrency taxation rules in Canada is crucial for cryptocurrency traders to avoid legal issues and minimise tax burdens.

If you are a cryptocurrency trader in Canada and are unsure about your tax obligations, it is recommended to seek the advice of a tax professional. Alternatively, you can use Kryptos to automatically calculate your crypto taxes and ensure they comply with the latest laws defined by CRA. 

Once you add your wallet to the platform, it auto-syncs all your transactions, detecting every taxable event from your history including DeFi and NFTs, and utilizing in-built mechanisms to reduce your tax bill. You can also generate different tax reports that are required to file your taxes in Canada.

To learn more about the platform or calculate your crypto taxes, Sign Up for free now. 

FAQs

1. Is cryptocurrency trading taxable in Canada?

Canadians are not liable to pay taxes if they purchase or hold cryptocurrency but may be subject to capital gains or business income taxes if they sell, mine, or receive other crypto-related income.

2. How much taxes do you pay on crypto in Canada?

How much taxes you pay on your crypto assets in Canada depends on whether you are an individual investor or a business, and your income bracket. As per CRA, any business income is 100% taxable, but if you are an individual investor, you are subject to capital gains tax which is only 50% taxable. 

3. How do I avoid crypto tax in Canada?

There’s no legal way to avoid crypto tax in Canada, however, there are several methods to minimise your tax bill including:

• Tax-loss harvesting
• Holding your crypto
• Being seen as an individual investor
• Taking out profits in a low-income year

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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!