24 Mar 2022 Josphat Kariuki
Seven Things To Know About Crypto Tax In Canada
Cryptocurrency is one of the hottest investment opportunities around the globe. So, it only makes sense that you would want to get in on the action as well. But there are some things that don’t get enough talk, like crypto tax in Canada and all that it entails.
Thankfully, this is your guide on the matter. Here are the 7 things that every potential investor should know when it comes to the taxation of cryptocurrency in Canada.
- Is Crypto Taxable in Canada?
The first and most important thing to know is that, yes, you can safely expect to pay taxes on cryptocurrency profits within Canada. It’s not seen as a fiat currency but a commodity instead. It is seen in the same vein as a capital property, something like a rental property or stock.
Knowing how it is classed may seem unimportant, but if you plan to file your own taxes, it is crucial to know from a tax perspective. It helps to provide a clearer explanation as to how it is taxed, which can lead to a more accurate filing. The most popular Canadian Crypto exchanges typically provide tax forms, with some even allowing you to connect to 3rd party tax prep services like WealthSimple.
- How is Crypto Taxed in Canada?
As covered briefly above, cryptocurrency is seen as a commodity by the Canadian Revenue Agency. What does that mean? Well, basically, it means it is either subject to a capital gains tax or income tax.
If it is taxed as income, that means paying income tax on all of the proceeds from a crypto transaction. But if it is taxed as capital gains, then there will be a capital gains tax paid on half of any of the profits that come from a crypto transaction. It basically comes down to whether the investment is seen as a capital gain or as business income.
- How to Determine Capital Gains vs Business Income
The decision can be made on a case by case basis. That said, there are common signs from the CRA that indicate that a crypto investment can be seen as business income. This happens when the crypto activity is due to commercial reasons, a product or service is being promoted, there is an intention to make profit shown, and those activities have some repetition.
That said, since it is a capital asset, there is the potential for capital gains tax should it be sold for Canadian currency, gifted, traded or spent on goods and services.
- Cryptocurrency Tax Breaks
The question most crypto investors have is whether or not there are any tax breaks to be enjoyed from the investment. There are a few things worth noting. First and foremost, any donations using crypto are tax deductible.
There is also a basic amount tax credit where up to the first $14,398 is tax free. There are also spousal tax credits where crypto can be transferred to a spouse or partner’s name to help avoid using up all of that personal tax allowance. There are more than a few breaks to be had.
- What About Crypto Capital Losses?
There is another bit of good news: capital gains tax isn’t due on any capital losses involving crypto. Just make sure that they are properly utilized to help reduce the tax bill when that time of the year rolls around.
The “50% rule” is where up to half of net capital losses can be offset in a single year. In a situation where there are no capital gains, then the capital losses can be carried forward to help offset any potential future gains.
- Taxation for Lost or Stolen Crypto
Though cryptocurrency is generally seen as a safe investment, it does not mean that there is no level of loss involved. While there is no specific guidance when it comes to claiming stolen or lost cryptocurrency as a capital loss, there is allowance for taxpayers to deduct capital losses due to the theft of any other capital property.
While it is not quite ideal yet, there are methods in which to save on taxation when cryptocurrency has been lost or stolen at any point.
- How to Calculate Crypto Income Tax
While it is always recommended to use the services of a professional when trying to deal with crypto tax in Canada, there are ways to learn on your own. Generally speaking, you can find both the provincial and federal income tax rates posted in plenty of different places.
Let’s say that you are living in Vancouver, British Columbia. Let’s also say that you have $10,000 in crypto income. This would result in a 20% federal tax rate for just that crypto. Added together with the provincial rate, that would provide the tax rate on that crypto. So, let’s say that the $10,000 at 28.2% would come out to be $2,820 in crypto income tax.
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