How is crypto taxed in Canada?

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 How is crypto taxed in Canada?
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Summary 

  • The Canadian revenue authority treats cryptocurrencies as taxable commodities. 
  • Investors who hold crypto tokens in their wallets or trading in exchanges are not liable to pay tax for their inventories.
  • Fifty per cent of the total capital gain from cryptocurrency is taxable. In case of capital losses, an individual’s overall capital gain will be compensated.

The Canada Revenue Agency (CRA) categorizes cryptocurrency in the commodity bracket under the Income Tax Act. Any capital gain from digital asset investing is taxable as an income from personal business operations. Crypto is taxed in Canada based on the latest transaction between cryptocurrencies and fiat money. 

However, possessing crypto token in cold wallets or digitally does not come under taxable income.

But one is liable to pay taxes in case of the following transactions:

  • Selling or gifting crypto tokens
  • Investing or trading in cryptocurrency, as well as swapping one crypto token to buy another virtual coin. 
  • Exchanging cryptocurrency with the Canadian dollar (CAD) will also attract capital gain taxes. 
  • Paying in cryptocurrency to purchase goods or services.

Canadian taxpayers must show their bank statements and Know Your Customer (KYC)-compliant crypto exchange trading transaction to clarify the nature of the investment. Canadians who earn from crypto trading are liable to pay taxes. 

Cryptocurrency businesses such as crypto exchanges, crypto mining operations, and crypto trading pay taxes on their income. 

How does capital gain tax work in crypto?

Half of your capital gains or profits from your final disposition on cryptocurrency are subject to taxation. This is also known as the taxable capital gain. In case of capital losses from your crypto investments, your losses will offset your overall taxable capital gains.

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However, your crypto losses cannot decrease taxes on total income from other resources, such as employment income. However, you can use your capital losses to reduce capital gains for the previous three years if you do not have any profits for the current calendar year.  

For example, Justin wants to buy a smartphone through an online seller who accepts payment in crypto. Justin loads its crypto wallet with C$ 2,000 worth of digital tokens to purchase the mobile. By the time completes the transaction with the vendor, the value of his crypto holding rises by US$ 200 after converting it to CAD. The realized profit by Justin is now available in his bank account, which will be reportable while filing his income tax return. He will pay tax on 50 per cent of his crypto capital gains.

How do crypto miners get taxed?

Income from crypto miners will be taxed case by case. If someone is mining cryptocurrencies as a hobby and not on a large scale, it will not be considered a business activity. Meanwhile, crypto mining firm operations are treated as business activities and get taxed accordingly. 

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