Canadians either consider cryptocurrency trading to be an entertaining hobby, or a valid means of investment. However, taxes have to be paid for the revenue gained from the trades conducted. The Canadian government has many guidelines and regulations regarding this space that every crypto trader has to abide by. This article will help traders understand the types of crypto tax they can be liable for to properly navigate the issue of taxes without violating any rule of the Canadian Revenue Agency.
It is worth noting that the Canadian government does not treat cryptocurrencies like legal tender. Instead, they are considered to be commodities that people invest in, and like many other investments, they might be liable for two different tax types namely; capital gains and income. Capital gains tax is calculated from the gains you make on your crypto holdings when you sell them, while income tax is calculated from money earned from cash flow.
Cryptocurrency Capital Gains
This is the more common type of crypto tax, and is calculated by noting the cost price at the point of purchase and comparing it with selling price at the point of sale. If the selling price is higher than the cost price, you will need to pay for the capital gains; if it is lower, you can report as capital loss.
When calculating the capital gains, you need to find a trustworthy source for the cryptocurrency prices when purchased and sold. If you buy bitcoin or any other crypto on a reputable exchange, they would most likely have this information available on their platform. There are many exchanges, and to learn more about them, you can conduct online research. If you made multiple sales, you can also check information on each transaction to calculate all the capital gains made, and the figures have to be reported in Canadian dollars.
If you bought and sold your crypto through a peer-to-peer network, you can check the prices on crypto price aggregator sites like CoinGecko or CoinDesk. These sites get the average crypto prices of any given time from numerous exchanges. However, there are some coins not listed on exchanges, in those cases, you would have to manually work out the prices.
The Canadian Revenue Agency believes that a fair market value for any cryptocurrency is the highest price that any independent, willing and informed buyer or seller would agree to transact with in an open market.
If you run a business and accept crypto as a viable means of payment, you would have to report that as income, rather than capital gains. Additionally, CRA regards any entity that conducts trades in an commercially viable manner, or acts in a business-like manner, as a legitimate crypto business. Generally, people that engage in the exchange, mining and trading of cryptocurrency, are considered to be in crypto currency businesses and would be liable for income taxes, not capital gains tax.
As a Canadian resident, as long as you earn money from crypto, regardless of the means, you owe tax to the government. The form of tax could either be capital gains or income, depending on the aforementioned situations. Neglect of your tax obligations could attract penalties from the Canadian Revenue Agency and is not advisable.