Cryptocurrencies are digital assets stored in a secure blockchain network using cryptographic techniques. Cryptocurrencies enable transparent, safe, anonymous, and quick transactions, attracting a large number of investors. Crypto assets are often subject to tax obligations, necessitating the need to understand the crypto tax rules and regulations of the country in which you are making transactions. In this article, we will look into Crypto in Canada and explore tax tips that you can’t miss.
Key Takeaways
- Crypto transactions are legal in Canada, however, the coins are not considered legal tender, reducing their utility in the country.
- Crypto assets are subject to tax, 50% on capital gains, and 100% on professional sales or other crypto sales that involve business.
- By holding assets instead of selling, making donations, and gifted cryptos are exempted or given a reduction in tax rates.
Crypto in Canada
The buying and selling of cryptocurrencies are legal in Canada. However, they are not considered legal tender, which means the Canadian government doesn’t oversee or regulate cryptocurrencies and is not supported by any central authority. The crypto transactions in Canada are not as safe as other countries, this is because the government does not hold federal or provincial insurance on crypto coins. Apart from that, the citizens can’t use crypto as a medium of payment of tax or other government-related payments. Canadian However, businesses in the country can accept crypto transactions at their own risk.
Crypto Tax in Canada
Like any other investment, cryptocurrencies are subject to tax. The Canadian government states that the Income Tax Act and tax rules apply to digital currencies and the holders of these currencies must pay tax.
The Financial Customer Agency (FCA) of Canada requests citizens to report the losses and gains from buying, selling, or mining cryptocurrencies while filing their taxes. This allows Canadians to pay taxes as capital gains or business income depending on the loss and gain situations. 50% of the capital gains from crypto and 100%of business income are taxable in Canada. The government offers a guide to taxpayers to declare their cryptocurrency on their taxes.
How to Calculate Crypto Gains in Canada?
The basic step involved in calculating the crypto gains is to determine whether you have to pay 50% of the capital gains or 100% of the business income. Crypto holders can utilize the Adjusted Cost Basis method to calculate crypto capital gains and losses, either by using fair market value at the time of acquisition or at the year-end time.
How to Report Crypto Taxes in Canada?
Taxpayers have to file crypto taxes by listing all capital gains from crypto sales by utilizing the adjusted cost basis method. In the case of identical properties, use the average price of purchases for calculating the capital gain. It is also necessary to offset capital losses from crypto assets to reduce the taxable capital gain.
Tips a Canada Taxpayer Can’t-Miss
Following are the 5 main important tips that you should be aware of as a taxpayer in Canada;
Tip 1: Keep Books and Records
A crypto holder has to keep necessary books and records to support each transaction including, the number of units and type of crypto used for each transaction, date and time, the value of the crypto asset while transaction in Dollars, the address associated with the transaction, wallet balances at the beginning and end of a specific transaction, etc. In addition, a crypto holder has to keep the receipts associated with the tax affairs including third-party software costs, accounting, and legal costs.
Tip 2: Determine the Value of Crypto Assets
Determining the value of crypto assets during transactions helps crypto holders to report the amounts on tax returns without an error. It is also important to keep adequate documents that support the value of crypto assets and amounts reported on tax returns. One has to use an efficient method to determine the value of crypto assets and use it consistently while keeping a record of how it is used.
Tip 3: Classify Assets as Capital or Business Income
A disposed crypto assert is either considered a capital gain or a business income. If the crypto asset is disposed of as business income, you must report the complete amount of profits earned from the disposition in the tax return file. If the disposition of the crypto asset is made as capital, resulting in a capital gain or a capital loss. If a person has capital gains from the crypto assets, he must include half of the capital gain in the income report, on the other hand, if one has a capital loss, he is allowed to deduct half of the capital losses against the taxable capital gain.
Tip 4: Determine Inventory Value
A crypto holder must know the value and cost of the crypto assets if it is labeled as business inventory to determine the amount of gain and loss. Holders can either value each item in the inventory at the price they were bought or their fair market value or value the whole inventory at a fair market value at the end of the year.
Tip 5: Claim Capital Allowance
A crypto holder who owns mining equipment and infrastructures to use in the crypto mining business is eligible to claim a deduction of Capital Cost Allowance (CCA) for equipment like application-specific integration circuits (ASIC) and Graphic Processing Unit (GPU).
How to Avoid Crypto Taxes in Canada?
There are different circumstances in which crypto holders are exempted or reduced from tax obligations in Canada.
1. Hold Your Crypto
Capital gains or losses are made when a person sells their crypto assets, which is subject to tax in Canada. If a person holds the crypto assets instead of selling them, they get free from paying tax.
2. Loss Harvest
A crypto holder can use 50% of the value of capital losses to offset the capital gains from cryptocurrencies that are subject to taxes.
3. Make Donations to Receive Tax Credits
Canadian taxpayers receive a 15% tax credit for making $200 donations and a 29% deduction in tax for donations over $200.
Tax-Free Crypto Transactions in Canada
- Holding crypto after purchasing using fiat, without selling it.
- Holding crypto received as a gift.
- Moving crypto between wallets.
- Creating Decentralized Autonomous Organizations (DAO).
Read More: Tips to Avoid Crypto Taxes
Final Thoughts
Cryptocurrencies are assets of the future offering seamless and efficient transactions. Many countries welcomed crypto with warm hands, enabling a friendly approach to crypto trade. However, countries like Canada though made crypto transactions legal, they don’t consider crypto as a legal tender, reducing the utility and protection associated with the platform. However, like all other assets, the country considers crypto as a taxable asset, all the holders earning a certain percentage of gains from crypto have to file tax returns.
