Overview of Crypto Taxation in Canada
Profits derived from crypto transactions are subject to income tax as capital gains or business income. Hence, it is critical to establish whether crypto transactions come under capital gains or business operations.
In Canada, crypto is not accepted as a legal tender. Thus, using crypto to pay for goods or services is considered bartering and has associated tax implications.
Canada does not have separate tax rates for short- and long-term crypto gains. The gains are taxed at the regular provincial and federal income tax rates.
For most people, the tax filing deadline is April 30, after the end of the year tax. Self-employed persons have up to June 15, while the deadline for deceased people may vary.
Federal and Provincial Crypto Tax Rates in Canada
Federal tax rates are implied all across Canada. On the other hand, provincial tax rates differ in every province.
Provincial Tax Rates in Canada
Every province in Canada has a different tax rate. One should determine the existing tax in their state and add it to the federal tax rate to arrive at the cumulative tax rate.
An example of how crypto taxes can be calculated is indicated below:
- A resident of Alberta, Canada, can make a crypto capital gain of $20000.
- According to the Canada Revenue Agency (CRA), the person must pay tax on half of this gain. This means the taxable amount is $10000.
- The person will pay a federal tax of 15% and an Alberta provincial tax of 10%, totalling a 25% tax rate on the $10000.
- Hence, 25% of $10000 amounts to $2500, the tax to be paid on the capital gain.
Determining Taxable Events in Canada
Examples of primary taxable events in Canada include:
- Utilizing crypto to purchase goods or services
- Selling crypto for fiat.
- Earning crypto as income
- Swapping crypto for another.
Business Income in Canada in the Context of Crypto
The definition of business income from crypto by the CRA is somewhat vague. It determines if a person’s crypto activities comprise income or capital gains on a case-by-case basis.
The CRA’s indicators of business income are shown below:
How to Calculate Gains on Crypto in Canada
The initial step entails establishing whether the tax is payable on 50% of the capital gains or 100% if one is a professional crypto trader or sells crypto as a business.
Gains for Individual Traders
The government taxes 50% of the profits made from selling crypto for a profit.
Cost Basis Method to Calculate Capital Gains and Losses
The CRA needs the adjusted cost basis method to calculate a person’s crypto capital gains or losses. It considers any associated fees when considering the crypto assets’ original cost.
Crypto Tax on Professional Traders and Businesses
In case one is trading as a business or professional trader, all profits are treated as business income instead of capital gains. This means one cannot benefit from the 50% capital gains inclusion rate.
The taxable amount’s calculation depends on the FMV of crypto assets determined at receipt and trading points.
Crypto Tax Exemptions in Canada
In Canada, crypto is tax-free if a person:
- Moves crypto between their wallets
- Purchases crypto using fiat currency holds it
- Acquires crypto as a gift
- Creates a decentralized autonomous organization (DAO)
Offset Crypto Capital Losses in Canada
In Canada, a person is not required to pay capital gains tax in case they have incurred losses while trading crypto. They could still utilize capital losses to reduce tax bills.
Capital losses are still subject to the 50% rule for capital gains.
Fight Against Crypto Tax Evasion
Examples of sanctions for tax evasion include:
- Travel restrictions
- Five years in prison
- The perpetrator could attract 200% of the taxes evaded penalty in addition to the extra amount.
Crypto Transactions Tracking
Canadian regulatory agencies can track crypto transactions. Despite crypto offering anonymity, regulatory agencies such as the CRA can track transactions.
Tax on Lost or Stolen Crypto
Despite the CRA not providing specific guidelines on crypto losses, it permits taxpayers to deduct capital losses if they suffer losses linked to theft or loss.
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