How To Cash Out Crypto Without Paying Taxes In Canada?
Cryptocurrency taxation is one of the latest topics of discussion among Canadian investors. The Canada Revenue Agency (CRA) now treats crypto as property, which means most dispositions, including selling, trading, or spending cryptocurrency, trigger a taxable event. But if you want to cash out crypto, there are legal and strategic ways to do so. If you aim to cash out cryptocurrency without paying immediate tax or at least minimize your tax liability, then this is the perfect informative guide for you.
Deciphering Canadian Crypto Tax Basics
Before we delve deeper into ways to reduce or minimize your taxes when cashing out crypto, it is best to understand the basics first. Here’s how crypto tax works in Canada.
How Crypto Is Taxed
It’s important to know that in Canada, cryptocurrency is considered a commodity and not a currency. When you dispose of crypto – by selling it for Canadian dollars, trading it for another coin, spending it, or gifting it – it is considered disposition, and it can create capital gains or business income event.
- Capital gains – In case you are an investor in Canada holding cryptocurrency for appreciation or any occasional sale, the profits are treated as capital gains. Only 50% of the gain is taxable.
- Business income – If you have frequent activities and they look like trading as a business, then all the gains can be taxed as your income (100%).
What Is Not Taxed?
Certain crypto transactions aren’t taxed as they don’t fall in the category of a disposition.
- Buying crypto with fiat currency
- Holding crypto without selling it
- Transferring cryptocurrency between your own wallets
- Receiving crypto as a gift
All these events are tax-free because there is no gain that has been realized yet.
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☎️ Get HelpStrategies To Cash Out Crypto With No Tax
Now that you are aware of the basic crypto tax rules, here are some useful legal strategies that will allow you to access or cash out the value of your cryptocurrency with minimal immediate tax.
Hold Until No Gain Is Realized
If you want to avoid paying tax, the simplest way is to not trigger a taxable event. If you don’t sell your crypto, you don’t owe any tax. This is the most straightforward and legal approach; hold onto your assets until your tax strategy or financial requirements change, and you can easily minimize the tax.
Use Tax-Advantaged Accounts
In Canada, there are specific registered accounts that offer tax-free or tax-deferred growth.
Tax-Free Savings Account (TFSA)
Any gains that are part of a TFSA, whether capital gains, interest, or dividends, are forever tax-free. Keep in mind that you cannot hold crypto directly in a TFSA, but you can own crypto-related ETFs or funds that help track Bitcoin, Ethereum, and other similar assets.
Registered Retirement Savings Plan (RRSP)
Crypto investments in an RRSP are tax-deferred. You have to pay taxes only when you withdraw your money from the RRSP later, usually at the time of retirement, and this too at a lower tax rate. Just like a TFSA, you can use the crypto ETFs rather than direct crypto holdings.
To know more about TFSA or RRSP, you can get in touch with our experts at Taxccount Canada. They will be happy to help you.
Take Crypto Backed Loan Or Convert It Into Stablecoins
There are two options if you want to access the value without selling – stablecoins and crypto-backed loans.
Stablecoins
It is a good idea to convert your crypto into a stablecoin (like USDC or USDT). This may not trigger tax if the stablecoin is treated as equivalent to the original crypto basis. It is a complex system and depends on how the CRA interprets it; that’s why it is recommended that you consult a tax professional. Taxccount Canada’s team is there to guide you.
Crypto-Backed Loans
You can take out a loan using your crypto as collateral, as it is not a taxable event because you are not disposing of your crypto; you’re just borrowing it against the value. You will receive cash without a sale, so no capital gain is realized, and you don’t owe any tax.
However, it is a risky process; if the value drops and liquidates your collateral, then that liquidation will be considered a taxable event.
Time Your Cash Outs
Timing plays a major role because capital gains are taxed when you dispose of your cryptocurrency.
- Make sure to spread large sales over multiple years, as this would avoid high income brackets.
- Sell in low-income years to reduce the overall tax owing, because capital gains add to your total taxable income.
Harvest Capital Losses
In case some of your crypto holdings are down in value at the moment, you can sell them to realize a capital loss. This will help offset gains and reduce the overall tax that you owe. You can also easily carry these losses forward or back to other tax years.
Get the help of a professional tax accountant from Taxccount Canada to know more about harvesting capital losses.
Gifts And Transfers
You can transfer crypto to your spouse or common-law partner, or even certain registered charities, and it will not trigger an immediate tax. It can also defer or eliminate tax, but there are certain CRA rules and regulations that you need to comply with. It is best that you get professional advice for the same.
Each of these strategies comes with its own risks, so make sure you get the best professional advice that’s customized to your requirements. With proper planning, you can access your crypto’s value in a tax-efficient way.
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☎️ Get HelpThis is general information only and not professional advice. Consult a professional before acting.
