How is Cryptocurrency Taxed in Canada 2022

February 2, 2022 | Written by: Sohail Afzal

Cryptocurrency Taxed

Are you wondering how crypto is taxed in Canada? According to the Canada Revenue Agency, cryptocurrency taxes in Canada are not always straightforward. If your investment is treated as a capital gain or a business income, you will pay either Capital Gains Tax or Income Tax on it. This is still not very clear. Our accounting firm experts explain everything you need to know about cryptocurrency taxes in Canada in this article. 

Can the CRA Track Crypto?

Definitely, the Canada Revenue Agency can track your crypto investments. The CRA said it was collaborating with crypto exchanges to share customer information in a recent announcement. They can track Canadian crypto investors to ensure they’re reporting their crypto investments accurately and paying the correct amount in crypto taxes by utilizing this information.

Other than Coinsquare, the CRA has not disclosed which crypto exchanges it is working with. In any case, Coinsquare isn’t the only crypto exchange sharing data with the CRA. Almost all sizeable Canadian crypto exchanges like Coinbase, CoinSmart, Crypto.com and more received the same data request from the CRA.

Furthermore, CRA is registered with FINTRAC (Financial Transactions and Reports Analysis Centre of Canada), which regulates financial institutions and investigates tax evasion and money laundering.

Reporting crypto taxes accurately is the key to remaining tax compliant.

How is crypto taxed in Canada?

The CRA views cryptocurrency as a commodity. The item is either income taxed or capital gains taxed.

You will pay Income Tax on your entire crypto transaction proceeds if you are taxed for crypto as income. You will pay Capital Gains Tax on half of the profits from a crypto transaction if your crypto is taxed as a capital gain.

Then how do you know if your cryptocurrency is taxed as income or capital gain? Whether you consider your investment, a capital gain or business income is crucial. Here’s how it works.

Business Income or Capital Gain

The CRA makes a decision on a case-by-case basis about what constitutes business income and capital gains. An investor may be taxed on business income from one transaction, while they may be taxed on a capital gain from other transactions made by the same investor. To summarize, the CRA is not very specific about what it considers business income.

There are some guidelines on this. Among the common signs you may be earning business income, the CRA lists the following:

  • Crypto activity is conducted for commercial purposes.
  • Your company or product is promoted.
  • You demonstrate your intention to make a profit.
  • You engage in crypto activities regularly or repetitively.

Because many Canadian crypto investors make business income rather than capital gains, they could be considered business income. Using active cryptocurrency trading, they show an investor who makes $40,000 by buying and selling crypto regularly.

Crypto profits are more likely to be considered business income rather than capital gains the more active you are in crypto trading. For specialized tax advice on your investments and their subsequent taxation, you should consult with an accounting firm in Canada.

Canada Capital Gains Tax on Cryptocurrency

Cryptocurrency is considered a capital asset, so when you sell, swap, spend or gift it, you’ll have to pay capital gains tax. Disposals of cryptocurrency include:

  • Crypto for Canadian dollars.
  • Changing one cryptocurrency for another.
  • Purchasing goods and services with crypto.
  • Giving crypto as a gift.

The proceeds from selling, swapping, spending or giving your crypto will not be subject to Capital Gains Tax – only the profits. This is also referred to as a capital gain.

As a Canadian citizen, you will only have to pay capital gains tax on half of your net capital gains each year.

Crypto Capital Gains Tax Rate Canada

There are no specific Capital Gains Tax rates in Canada and no short-term or long-term Capital Gains Tax rates. Capital gains on cryptos are taxed at the same rate as your federal and provincial income tax rates. However, only half of your capital gains are taxed.

Conclusion

We hope you now have a clear picture of cryptocurrency and how the CRA taxes it. If you want to pay your crypto taxes on time and without any mistakes, our accounting firm can help you out with it. Contact us to find out more about how we can help you.

Sohail Afzal CPA Toronto

Sohail Afzal, CPA, CMA, MBA

Sohail Afzal, (CPA, CMA, MBA) is the founder & CEO of GTA Accounting Professional Corporation. He is a highly experienced Chartered Professional Accountant and businessman himself and understands the challenges that many businesses face when it comes to cash flow management. As an experienced business consultant & tax advisor, he is helping companies grow by providing the technical, financial, and contractual information necessary for strategic decision-making.

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