Tax on Cryptocurrency in Canada: What You Need to Know

Cryptocurrency has become a popular investment in Canada, but crypto profits are not automatically tax-free. The Canada Revenue Agency (CRA) generally treats cryptocurrency as a commodity for income tax purposes. Depending on your activities, profits and losses zsmay be treated as capital gains and losses or business income and losses.

Understanding cryptocurrency tax in Canada can help investors, traders and businesses maintain proper records and complete their tax filing accurately.

How Does the CRA View Cryptocurrency?

The CRA generally treats cryptocurrency as a commodity rather than legal tender such as the Canadian dollar.

When cryptocurrency is sold, exchanged or otherwise disposed of, the transaction may result in a capital gain or loss or business income or loss. The appropriate treatment depends on the facts and nature of your crypto activities.

Is Crypto Taxable in Canada?

Yes. Cryptocurrency transactions can create taxable income or gains in Canada.

This applies to Bitcoin, Ethereum and other cryptocurrencies and tokens. Tax consequences can arise even when cryptocurrency is exchanged without converting it into Canadian dollars.

Buying and simply holding cryptocurrency, however, does not generally create a taxable gain until a disposition occurs.

Capital Gains vs. Business Income

One of the most important cryptocurrency tax questions is whether profits are considered capital gains or business income.

Capital treatment may apply where cryptocurrency is acquired and held as an investment. Under capital treatment, the taxable portion of a capital gain is determined using the capital gains inclusion rate applicable to the relevant tax year.

Business income treatment may apply where your activities have characteristics of a business, such as frequent trading, short holding periods, significant time devoted to trading or activities conducted with a business-like approach.

If crypto activity is considered a business, business profits are generally fully included in income.

The classification depends on the individual facts, so frequent crypto traders may benefit from professional tax and accounting services.

Taxable Crypto Transactions

Common cryptocurrency transactions that may create a taxable event include:

• Selling cryptocurrency for Canadian dollars
• Trading one cryptocurrency for another
• Using cryptocurrency to purchase goods or services
• Receiving cryptocurrency as payment for work
• Mining cryptocurrency
• Receiving staking rewards
• Disposing of certain tokens received through airdrops

For example, exchanging Bitcoin for Ethereum can constitute a disposition even though no Canadian dollars are received.

Non-Taxable Crypto Events

Some cryptocurrency activities generally do not create an immediate taxable disposition.

Examples can include:

• Buying cryptocurrency with Canadian dollars
• Holding cryptocurrency without disposing of it
• Transferring cryptocurrency between wallets you own

Although these transactions may not create an immediate tax liability, records should still be maintained because purchases and transfers can affect future adjusted cost base calculations.

How to Calculate Crypto Gains or Losses

A cryptocurrency capital gain or loss generally requires comparing the proceeds of disposition with the adjusted cost base (ACB) and applicable disposition costs.

A simplified calculation is:

Capital Gain or Loss = Proceeds of Disposition − Adjusted Cost Base − Selling Costs

All relevant amounts should generally be converted into Canadian dollars using an appropriate exchange rate for the transaction.

Accurate transaction records are essential for preparing your Canadian income tax return.

Adjusted Cost Base for Crypto

The adjusted cost base represents the tax cost of your cryptocurrency holdings and must be properly tracked.

Where additional units of the same cryptocurrency are purchased, the average cost of the holdings generally needs to be recalculated.

This can become complicated when an investor:

• Uses multiple crypto exchanges
• Makes frequent purchases and sales
• Trades one cryptocurrency for another
• Transfers assets between wallets
• Pays transaction or network fees

Crypto tax software and experienced tax accountants can help organize transaction histories and calculate ACB where activity is extensive.

Mining and Staking Cryptocurrency

Income from cryptocurrency mining and staking requires separate consideration.

The tax treatment can depend on whether the activity is carried on as a business and the circumstances surrounding how the cryptocurrency was earned.

If mining constitutes a business activity, related income generally needs to be reported as business income, while eligible expenses may potentially be deductible subject to Canadian tax rules.

Staking rewards can also create income-tax consequences, depending on the arrangement and facts.

NFTs and Taxes in Canada

Non-fungible tokens (NFTs) can also create Canadian tax consequences.

Buying, selling or trading NFTs may result in capital gains or business income depending on the nature of the activity.

Individuals who regularly create and sell NFTs as a commercial activity may have business income rather than capital gains.

The use of cryptocurrency to purchase an NFT can also potentially create a disposition of the cryptocurrency used for payment.

Reporting Crypto on Your Tax Return

How cryptocurrency is reported depends on whether the activity is treated on capital or income account.

Capital gains and losses are generally reported on Schedule 3 of the T1 income tax return.

Where cryptocurrency activities constitute a business, income and expenses may generally be reported using Form T2125, Statement of Business or Professional Activities.

Professional tax return filing services can be useful when taxpayers have transactions across several wallets or exchanges.

What Crypto Records Should You Keep?

Detailed cryptocurrency records are important because the CRA may request supporting information.

Consider maintaining records of:

• Transaction dates
• Type of cryptocurrency
• Number of units
• Value in Canadian dollars
• Purchase and sale prices
• Exchange records
• Wallet addresses
• Transaction IDs
• Trading and network fees
• Transfers between your own wallets
• Mining or staking income
• Supporting bank records

Keeping complete records throughout the year is generally easier than reconstructing thousands of transactions during tax preparation.

Table of Summary

Frequently Asked Questions

Is cryptocurrency taxable in Canada?

Yes. Disposing of cryptocurrency can create taxable capital gains or business income depending on the nature of your activities.

Is buying Bitcoin taxable?

Simply purchasing Bitcoin with Canadian dollars generally does not create a taxable gain. Tax consequences generally arise when the cryptocurrency is disposed of.

Is swapping Bitcoin for Ethereum taxable?

A crypto-to-crypto exchange can constitute a disposition for Canadian tax purposes even if you do not receive Canadian dollars.

Are crypto transfers between my own wallets taxable?

A genuine transfer between wallets you beneficially own generally does not itself represent a disposition, although records should be maintained to establish that it was a transfer rather than a sale.

How do I report crypto capital gains?

Crypto transactions treated on capital account are generally reported on Schedule 3 of the T1 income tax return.

Is crypto trading considered business income?

It can be. Frequent trading and other business-like activities may cause cryptocurrency profits to be treated as business income. The determination depends on the facts.

Do I need a tax accountant for cryptocurrency?

Simple crypto activity may be manageable independently, but professional tax accountants can be helpful when you have frequent trades, multiple exchanges, mining, staking, NFTs or incomplete ACB records.

Need Help With Cryptocurrency Tax Filing?

Taxccount Canada provides tax and accounting services and tax return filing services for Canadian investors, traders, individuals and business owners.

Our team can help review cryptocurrency transactions, calculate adjusted cost base, determine appropriate tax reporting and prepare your Canadian tax filing.

This is general information only and not professional advice. Consult a professional before acting.