Canada Crypto Tax Guide 2024
Updated upto 09/04/24 to accommodate ICO, Gifts, Donation Taxes and DAO taxes
The CRA (Canada Revenue Service) classifies crypto as a commodity for tax purposes, which essentially means that any gains derived from the disposal of such assets will be considered capital in nature and attract capital gains tax. However, you only pay taxes on 50% of your gains in Canada. Although there are instances where transactions can be categorised as business income such as-
- If you indulge in crypto transactions for commercial reasons
- You’re involved in promoting a product or service
- You show the intent of making a profit
- You are involved in repetitive transactions
Note that unlike most countries where there are separate tax rates for long-term and short-term capital gains tax, Canada doesn’t have a dedicated capital gains tax structure. Instead, crypto capital gains are taxed based on the prevailing Federal Income Tax and Provincial Income Tax rates. The federal income tax rates range between 15-33% while the provincial income tax rate varies based on where you live in Canada. This guide covers all the different types of crypto transactions that entail tax liabilities such as mining, staking, or trading crypto assets. It also answers some crucial questions like “How to calculate my income or capital gains?”, “Are there any tax-free crypto transactions?”, and “How can I pay less taxes on my crypto gains/income?” to help resolve all your crypto-tax related queries.
How is Crypto Taxed in Canada?
As previously mentioned, the Canada Revenue Agency classified crypto assets as a commodity, which means that any gains you make by disposing of such assets are taxable and attract capital gains tax. However, you only need to pay CGT on 50% of your gains in Canada. Moreover, depending on the nature of your transactions your income may also be categorised as business income and you will be required to pay income tax on the full amount.
The CRA makes individual assessments for every taxpayer to determine whether certain transactions will be categorised as business income or capital gains. It is entirely possible for an individual to have a mix of business income and capital gains transactions
The following transactions are considered taxable in Canada:
- Trading one type of cryptocurrency for another type (e.g., selling Bitcoin for Ethereum)
- Selling cryptocurrency for Canadian dollars or any other currency
- Using cryptocurrency to purchase goods or services
- Mining cryptocurrency as a business or commercial activity
- Receiving cryptocurrency as payment for goods or services
- Receiving cryptocurrency as a reward for staking or participating in a proof-of-stake network
- Receiving cryptocurrency as a result of a hard fork or airdrop
Capital Gains Tax
In Canada, there are no specific capital gains tax rates for short or long-term crypto investments. Instead, crypto capital gains are subject to taxation based on the prevailing Federal Income Tax and Provincial Income Tax rates. It's important to note that as an individual holding crypto, you will only be taxed on 50% of your total capital gains. However, professional day traders are required to pay taxes on the full 100% of their gains.
The following transactions attract capital gains tax in Canada-
- Selling crypto for fiat
- Gifting crypto
- Buying a product or service with crypto
- Swapping crypto for other crypto assets
Listed below are the federal income tax rates for the 2023-24 tax year:
You can view a detailed list of provincial taxes for all the provinces in Canada here.
Income Tax
In the event that you appear to be making a regular or recurring income from crypto assets, you will be liable to pay income tax to the authorities. Listed below are some transactions that attract income tax in Canada.
- Getting paid in crypto
- Minting crypto or NFTs from blockchain
- Referral awards
- Rewards from staking
- Selling self-curated NFTs
Moreover, any take-home profits you make from play-2-earn or engage-2-earn platforms may also qualify as income and be taxed accordingly. Some examples of such platforms are-
- Earnings from CoinMarketCap Learning and Binance Learning platforms
- Earnings from P2E games like Axie Infinity and Decentraland
- Any income made from browse-2-earn platforms like Brave and Permission.io
- Income made from Watch-2-Earn platforms like Odysee
The income tax rates in Canada are the same as the Provincial income tax rates and the federal income tax rates as mentioned in the “Capital Gains Tax Rate” section above. You can revisit the section or look at a comprehensive list of income tax rates in Canada here.
Note that it’s mandatory to declare crypto transactions in your tax return and failing to do so might result in legal trouble as the CRA is more than capable when it comes to tracking investor activity. Here’s how the CRA tracks crypto transactions:
- The CRA can track the crypto investments of Canadians
- It is also working with crypto exchanges to obtain customer information
- The CRA is using the information to track Canadian crypto investors to ensure accurate reporting of investments and taxes.
- Money service businesses in Canada have to report transactions greater than CA$ 10,000 to the CRA.
- The CRA is registered with FINTRAC which investigates money laundering and tax evasion.
- Crypto exchanges registered with FINTRAC in Canada are required to obtain a government-issued ID and proof of address.
- It is yet to specify which crypto exchanges they're working with other than Coinsquare.
- Most crypto exchanges operating in Canada have had the same data request from the CRA.
Classification of Cryptocurrency for Tax Purposes
Crypto assets are not considered a currency and are categorised as property for tax purposes. This implies that any gains made from the disposal of these assets will be considered capital gains. From a tax perspective, this translates to the disposal of capital assets being taxable, and the gains incurred will be subjected to capital gains tax.
Although there are some instances where gains derived from crypto assets may be considered as income due to their recurring nature and in which case they shall be taxed as income. But since, there is no dedicated capital gains tax in Canada, the tax rates remain the same for both these transactions.
How to Calculate Crypto Income in Canada?
Calculating your crypto income is simple. All you need to do is to find the fair market value of the assets at the time you receive them and do it for all the assets you’ve received over a tax year and then add them all up. The number you get is your taxable income base and you can apply the federal and provincial income tax rates to them to calculate how much you owe as income tax to the CRA.
However, calculating your capital gains is not that simple. When you dispose of your cryptocurrency assets through selling, swapping, or gifting, you create a capital gain or loss, whether it was intentional or unintentional. This capital gain or loss represents the difference between the amount received from the disposal and your cost basis. Now, cost basis is simply the price you pay to an exchange to acquire a certain crypto asset. But because investors usually buy multiple assets of the same kind at different prices, determining the cost basis becomes tricky. That’s exactly why investors should use dedicated cost basis methods as specified by the tax authorities for cost basis calculations.
In Canada, the average cost basis method is employed for calculating the cost basis of crypto assets. This is a fairly simple method that considers the average acquisition price across all assets of the same type as the cost basis. For instance, if Josh buys BTC 3 times within the tax year for CA$ 31,000, CA$26,000, and CA$ 30,000 respectively. The cost basis would simply be equal to CA$ 29,000 (average of CA$ 31,000, CA$ 26,000, and CA$ 30,000).
For more complex transactions where more than 1 BTC is acquired at separate instances, investors are required to take the weighted average as the cost basis.
Consider the following transaction block.
24/07/23 - Jocelyn bought 2 BTC for CA$ 31,000
16/12/23 - Jocelyn bought 1 BTC for CA$ 38,000
08/01/24 - Jocelyn bought 2 BTC for CA$ 30,000
In this case, the cost basis will be equal to the weighted average of all the acquisitions.
Cost Basis = CA$ (2*31,000 + 1*38,000 + 2*30,000)/5 = CA$ 32,000
It's essential to note instances where investors attempt to fabricate gains by selling an asset and repurchasing it shortly afterward, creating artificial losses to offset gains. This practice, known as wash trading, is addressed by Canadian authorities through the superficial gains rule. According to this rule, if an investor buys the same asset within 30 days before or after its disposal, they are not permitted to deduct the losses.
Exemptions and Deductions Available in Canada
The CRA offers the following tax breaks to Canadian residents:
- Personal Tax Allowance
The CRA offers a tax-free allowance of CA$ 15,000 to every resident which means that the first CA$ 15,000 you make will be tax-free in Canada.
- Spousal Tax Credit
The spousal tax credit allows you to transfer your unused tax credit to your married or legal partner. If your income is CA$ 8,000 while your partner makes CA$ 20,000, you can transfer the remaining CA$ 7,000 (CA$ 15,000 - CA$ 8,000) of your tax credit to your partner.
- 50% Capital Gains Taxation
As mentioned above, only 50% of your capital gains are taxable in Canada, therefore you don’t need to worry about your entire earning being taxed.
- Use a Tax Free Savings Account or a Registered Retirement Savings Plan
Contributions to the TFSA account are capped at CA$ 6,500 while the RRSA contributions are 18% of one’s previous year’s income or CA$ 30,780 (whichever is lower). Contributions to both are tax deductible.
Tax-Free Crypto Transactions
Although crypto transactions are taxable in Canada, some transactions are tax-free:
- Buying crypto with fiat currency
- Holding crypto
- Crypto being gifted to you
- Creating a DAO
- Moving crypto assets between wallets
Treatment of Crypto Losses
Don’t worry if a market correction has left you with a pile of losses, you won’t be taxed on any of it. But instead of just letting it all go to waste, you can use them to reduce your tax bill by offsetting them against your capital gains. Remember that you can only offset 50% of your losses against your gains in a tax year similar to the capital gain taxation rule. If you still have leftover losses after that, you can carry them forward into the subsequent tax year as future losses and write them off against future gains.
Even if you’ve made no capital gains in a tax year, you can report all your capital losses to the CRA and carry them forward as a contingency write-off fund for any future gains you make.
Note that Canada has a Superficial Loss Rule to prevent investors from generating fictitious losses, which states that an individual can’t claim a capital loss if they buy the same crypto 30 days before or after a disposal.
Taxation of Crypto Specific Activities
Now that we have a good grip on how crypto taxes work and how to calculate them. Let’s look at how specific crypto transactions are taxed.
Crypto Mining Taxes
Your mining activities are taxed based on your intentions and the nature of your returns. If you’re seen as an individual doing it as a hobby, you will attract capital gains tax. While if you appear to be mining as a business, the gains will be taxed as income.
Mining as a Hobby
If you’re mining as a hobby, you will not attract income tax. The tokens received as mining rewards will inherit the cost basis equal to CA$ 0. Which makes sure that all your gains are taxed once you dispose of these tokens by selling, swapping, or gifting these assets.
Mining as a Business
Mining as a business is different from mining as an individual. Any tokens that you own are considered an inventory and you have to value these assets using any one of the following methods:
- Value each asset by the acquisition cost or their fair market value at the end of the tax year.
- Value the entire inventory at its fair market value at the end of the tax year.
When determining the value of your inventory, you have the option to use either the cost or fair market value. If you go with the former, you can choose the lower value for each particular cryptocurrency you own, which is a great way to plan for taxes. 'Cost' refers to the price paid for acquiring the property, as well as all relevant expenses associated with its purchase. Maintaining consistency in the method used to value your property year after year is crucial.
Note that the CRA has made new amendments to the Excise Tax Act in section 188.2 which define “crypto assets” for the specific purpose of applying goods and services / harmonised sales tax (GST/HST) to crypto asset mining activities.
Where a taxable property or service is exchanged for cryptocurrency, the GST/HST that applies to the property or service is calculated based on the fair market value of the cryptocurrency at the time of the exchange.
If your business accepts cryptocurrency as payment for taxable property or services, the value of the cryptocurrency for GST/HST purposes is calculated based on its fair market value at the time of the transaction.
Crypto Staking Taxes
Staking is how proof-of-stake networks add and validate new transactions onto their blockchain. The chain selects a network participant to add and validate the most recent set of transactions on-chain, and in return offers them a reward. This reward is called staking rewards and they are the same as mining rewards as far as their taxation is concerned.
These tokens are taxes as income and inherit a cost base equal to the fair market value of on receipt, to ensure that any gains upon disposal are taxes appropriately as capital gains.
Airdrops and Forks
The CRA is yet to release dedicated guidelines for the taxation of airdrops and forks but based on the interpretation of the existing guidelines, it is highly improbable that any tokens received through airdrops and forks will be taxes as income. Although you might have to pay capital gains tax on any gains you make upon disposal.
For more clarity on the subject, do consult an experienced tax professional.
Crypto Gifts and Donation Taxes
Gifting crypto in Canada constitutes a taxable event as it is seen as the disposal of crypto assets. You’re liable to pay CGT when you gift crypto to others if the value of the asset has increased since acquisition.
Note that you only pay CGT on 50% of your gains.
Crypto donations to a registered charity are also considered as a disposition of assets and entail a gains tax liability if the value of donated assets has increased.
When you donate crypto to a registered charity, it is classified as a Gift of Kind donation. As such, it falls under the deemed fair market value rule. This requires you to inform the charity about the acquisition date of your crypto asset. If the asset was received and donated within three years of the acquisition date, the charity may issue a tax receipt based on the value at the time of acquisition.
Defi Transactions
The CRA is yet to release guidelines on the taxation of Defi transactions. However, that doesn’t mean that you won’t have to pay any taxes on Defi transactions, the following can be said based on the existing guidelines about Defi transactions and their taxation.
When you receive tokens as compensation for provisioning a service or selling a product, it will be taxed as income. However, when you sell these tokens in an open market for a profit, the gains will attract capital gains tax.
Here are some details about specific Defi transactions and how they will be taxed according to what we could find and extrapolate:
- Earning Interest from Defi protocols: Income tax
- Borrowing funds from Defi protocols: No tax
- Paying Interest in Defi protocols: CGT
- Selling or Swapping NFTs: Income tax if you’re the creator, CGT if you’re not
- Buying NFTs: CGT when bought with crypto
- Staking on Defi protocols: Income tax
- Yield and Liquidity Farming: Income tax
- Adding/Removing Liquidity: CGT
- Returns from Defi Margin trades: CGT
We do suggest contacting a tax consultant for more clarity on the subject.
ICOs and Token Sales
It’s still not clear whether income from ICOs is viewed as business income or just regular income by the CRA. We will be adding more details regarding the taxation of tokens received from ICOs once the guidelines regarding the same hit our radar.
Crypto Lending and Borrowing
There are no specific guidelines on how lending and borrowing of crypto assets will be taxed. However, based on the current guideline, interesting income from lending crypto assets will most likely be taxed as income since it is a form of recurring income.
Also, borrowing crypto is a tax-free transaction as taking a debt is tax-free in most instances.
NFTs and DAOs
NFTs
The CRA is yet to release relevant guidelines on NFT taxation. However, it is highly likely that they would be considered as crypto assets for tax purposes. Which essentially means that they will be regarded as capital property and taxed accordingly.
- Creating and selling NFTs is considered business income and is taxed according to the income tax rates
- Buying NFT for crypto, selling NFT for crypto or fiat, and swapping NFT for another attracts capital gains tax
- Gifting NFTs attracts capital gains tax due to the increase in value of the asset from the time you acquired it to the time you gifted it.
DAOs
DAOs (Decentralised Autonomous Organizations) are gaining popularity in the crypto space. These member-owned communities operate without central leadership, allowing stakeholders to make governing decisions collectively. Instead of a centralised authority, DAOs rely on token holders to vote on important matters. For instance, Uniswap is an exemplary DAO where UNI token holders vote on protocol-related issues such as fee allocation and new feature implementation.
DAO members can derive benefits from the organisation in various ways. They may receive a share of profits or sell their DAO tokens for investment purposes.
The taxation of DAOs lacks specific guidance from the CRA. However, since DAOs are not registered entities and lack centralised control, they are similar to flow-through entities. In this interpretation, any income distributed to DAO members would likely be subject to Income Tax, and capital gains taxes would apply to the sale of appreciated DAO tokens acquired over time.
Crypto Margin Trades, Futures, and CFDs
The taxation of margin trades, futures, and CFDs depends on whether you’re seen as an individual investor or day trader which depends on the scale of transactions.
Individual Investor
If the CRA considers you to be a private investor, any gains from margin trades, derivatives, and other CFDs will be subject to Capital Gains Tax. You won't owe any tax when you initiate a position. Instead, the tax is applicable only when you settle your position, and any gains resulting from it will be subjected to Capital Gains Tax.
Day Trader
On the other hand, if the CRA perceives you as a day trader who trades frequently at the same level of scale, you'll be liable to pay Income Tax on all the profits you earn from your trades. As discussed earlier you won't owe any tax on initiating a position while margin trading, dealing in derivatives, or other CFDs. Instead, you'll be taxed only when you close your position and realise any profits.
How to Avoid Paying Tax on Cryptocurrency in Canada?
Although you can’t avoid paying crypto taxes entirely there are some ways you can bring down your tax liabilities legally:
- Invest in a TFSA
Canadian residents can use a Tax-Free Savings Account (TFSA) for tax-free profits. Instead of directly buying cryptocurrency, they can invest in Bitcoin ETFs on the Toronto Stock Exchange, such as Purpose Bitcoin ETF (BTCC), Evolve Bitcoin ETF (EBIT), and CI Galaxy Bitcoin ETF (BTCX). These ETFs track Bitcoin's price and offer a convenient way to invest without the complexities of self-custody and with potential management fees.
- Invest in RSP
Investing in a Retirement Savings Plan is the best way to ensure a secure future and lower your tax bill at the same time. Contributions to RSP are tax deductible and can be used to lower your tax bill. You can even contribute to your spouse’s RSP and claim a tax deduction on that too.
- Use Tax Loss Harvesting
Use your losses as an offset against your gains to lower your tax bill. You can close positions with potential losses and use them as an offset against any gains you’ve made within the tax year.
Reporting Requirements, Compliances, and Deadlines
The tax-year in Canada is the same as the calendar year running from January 1st to December 31st. All crypto-related income, capital gains, and losses must be reported to the CRA by April 30th, 2023.
In the event that the deadline falls on a weekend, taxpayers can file their taxes by May 1st, 2023. It would be best to not delay the affair as individuals can start filing their tax returns by the end of February.
Please note that your tax payment will be considered timely only if it is received or processed by the CRA on or before May 1st each year
How to File Crypto Taxes in Canada
There are several ways you can choose to file your taxes in Canada. We have listed some of them below:
- File your taxes using tax software
You can use certified tax software like Kryptos.io to file your taxes in Canada. It is quite convenient and creates a legally-compliant tax report in a matter of minutes by auto-fetching all your transactions and incorporating any deductions that are possible. With certified tax software, you can complete your tax returns within 2 weeks.
- File your taxes through a tax accountant
A tax accountant is someone well-versed in the tax infrastructure and can help you save a lot of time and money by utilising existing loopholes in the system. The only demerit of using this option is the high accountant consulting fee which may not make sense to you if you have a nominal income.
- File your taxes through a volunteer tax clinic
Tax clinics have volunteers who can file your taxes for free. All you need to do is find one and hand over your transaction records. Note that this might not be the ideal option for someone with a complex set of transactions and high income.
- Through a Discounter(preparer)
A Discounter is a tax preparer who provides an upfront discounted tax refund by computing your refund amount, even before submitting your tax return. Filing your tax return through a tax preparer is the fastest way to file your taxes because the discounter pays you a discounted return right away before filing your taxes.
What Tax Records Will the CRA Want
The CRA has issued clear guidelines regarding the record-keeping of transactions for tax purposes. Here’s a list of documents you should maintain according to the CRA:
- Date and time of transaction
- Receipts of all buy/sell transactions
- A record of the fair market value of assets at the time of purchase
- Transaction description crypto address of other parties involved
- Additional charges
- Exchange records
- Digital wallet records and wallet addresses
How to File Crypto Taxes Using Kryptos?
Now that you’re aware of how your crypto transactions are taxed and what forms you need to fill out to complete your tax report, here’s a step-wise breakdown of how Kryptos can make this task easier for you:
- Visit Kryptos.io and sign up using your email or Google/Apple Account
- Choose your country, currency, time zone, and accounting method
- Import all your transactions from wallets and crypto exchanges
- Choose your preferred report and click on the generate report option on the left side of your screen and let Kryptos do all the accounting.
- Once your Tax report is ready, you can download it in PDF format.
If you still have any doubts regarding the integrations or generating your tax reports, you refer to our video guide here.
Resources and Support
Frequently Asked Questions(FAQs)
- Is crypto legal in Canada?
Yes, crypto is legal in Canada. The Canadian government does not consider cryptocurrency as legal tender, but it is recognized as a commodity subject to tax laws. The country has a regulatory framework for cryptocurrencies and exchanges called the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), which requires cryptocurrency businesses to register with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) as money services businesses (MSBs) and comply with certain anti-money laundering and know-your-customer (KYC) requirements.
- How is Crypto Taxed in Canada?
In Canada, cryptocurrency is subject to taxation and is treated as a commodity for tax purposes. The Canada Revenue Agency (CRA) treats cryptocurrency transactions similar to barter transactions, meaning that buying, selling, or trading cryptocurrencies can result in capital gains or losses. Here are some ways crypto is taxed in Canada:
- When you sell or dispose of cryptocurrency, you may incur capital gains or losses that are taxable. Capital gains are calculated by subtracting the cost of the cryptocurrency from the proceeds of the sale.
- If you earn cryptocurrency as payment for goods or services, it is considered business income and is subject to income tax. The amount of tax you owe will depend on your marginal tax rate.
- If you mine cryptocurrency as a business, the value of the coins mined is considered business income and is subject to income tax.
- Cryptocurrency transactions may be subject to the Goods and Services Tax/Harmonized Sales Tax (GST/HST), depending on the type of transaction and the parties involved.
- How much tax do you pay on crypto in Canada?
The amount of tax you pay on crypto in Canada depends on the type of transaction, the amount of profit or gain you make, and your overall income tax bracket. Here are some examples:
- Capital Gains Tax: When you sell or dispose of cryptocurrency, any gains you make are subject to capital gains tax. The tax you pay depends on your marginal tax rate, which ranges from 20% to 53.53% in Canada. However, only 50% of the capital gains are taxable.
- Income Tax: If you earn cryptocurrency as payment for goods or services, the income is considered business income and is subject to income tax. The amount of tax you pay depends on your marginal tax rate and income.
- Mining Income: If you mine cryptocurrency as a business, the value of the coins mined is considered business income and is subject to income tax. The amount of tax you pay depends on your marginal tax rate and the amount of income you earn.
- GST/HST: Cryptocurrency transactions may be subject to the Goods and Services Tax/Harmonized Sales Tax (GST/HST), depending on the type of transaction and the parties involved.
- Which crypto exchanges are banned in Canada?
There are thousands of crypto exchanges in Canada operating under the nose of tax authorities and offering their services without their approval, and we can’t mention all of them here. Instead, we have prepared a list of crypto exchanges approved by the CRA in Canada.
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!
