Canada Cryptocurrency Tax Guide & The CRA Processes for Crypto Taxes

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With each new year, cryptocurrencies enter a new era as well. In 2008, Satoshi set its foundation. Moving on, investors step in to gain huge profits. Moreover, we have been receiving other news about cryptocurrencies replacing fiat currencies.

You can ignore the facts mentioned above for a while, but we have something that probably should not be overlooked – your cryptocurrencies are taxable.

Yes, you heard it right! All your crypto-profits, crypto-assets, and crypto-tradings are taxable under Canadian taxation laws.

This article has discussed a broad overview of Canadian cryptocurrency taxes and different processes to avoid unnecessary monetary or criminal penalties.

How Does the Canadian Revenue Agency (CRA) Understand Cryptocurrency?

Even if the futuristic trends about Cryptocurrency appear confusing, the CRA looks pretty sure about policies regarding cryptocurrency taxes.

The CRA treats your Cryptocurrency as equivalent to a physical commodity. They understand your crypto as an oil or gold for taxation processes. If you make some profits on your Cryptocurrency during a specific tenure, the CRA will treat this as a capital gain.

Imagine in 2020 that you had a bitcoin with a market value of about $30,000. Moving on, in 2021, its value increased from $30,000 to $40,000. The $10,000 will act as a capital gain. Moreover, the CRA will take this capital gain under different taxation processes.

Is My Cryptocurrency Trackable by the CRA?

The CRA has lately been working on tracking the data for your cryptocurrency assets. Yes, they can track your virtual currencies. Moreover, all the exchanges come under tight laws to operate in any country. They may share data for your crypto holdings to make the taxation process smooth.

The CRA reported being closely connected and talking with different exchanges in recent months. The CRA wants these exchanges to provide the data for the people holding crypto assets and wants to make sure that nobody evades the tax.

You can read these developments to get a broad overview of how CRA can track crypto assets.

  • Every money service in Canada reports to the CRA if a transaction exceeds $10,000.
  • The earlier details imply that if you made any transaction above $10,000, it would notify the CRA.
  • The CRA works with FINTRAC, an institution that regulates taxation processes and ensures nobody evades tax. Furthermore, some of the exchanges are listed with FINTRAC.
  • Exchanges registered with FINTRAC come under heavy scrutiny. They may trace your transactions by collecting your ID and addresses.

It’s also important to note that even if there are some limitations for the CRA to audit your crypto transaction, it does not imply that there will be no mechanism to maintain check and balance on crypto transactions in the future.

We need to be super cautious about these regulations since it involves your money.

Different Conditions to Consider Cryptocurrency for Taxes

Taxation is a very complex process. It depends upon your contextual financial data and reporting. Moreover, the laws may be subject to change every year. You cannot estimate and calculate your taxes using standard metrics.

We recommend consulting a cryptocurrency CPA to know about your financial details and taxes.

However, we have listed broad categories to consider your Cryptocurrency under taxation processes.

1 – Cryptocurrency As a Business Income

As mentioned before, the CRA treats your Cryptocurrency as a commodity. Categorizing it as a commodity may be subject to income and capital gain taxes.

If you receive Cryptocurrency in your earnings, it may be your income. Under this condition, the CRA will process your Cryptocurrency with income tax.

conditions for crypto income in the Canada cryptocurrency tax

Following are some of the broad rules to understand your crypto as an income.

  • You make regular crypto transactions and operate on a repetitive basis.
  • You come to make a profit.
  • Your cryptocurrency activities happened for different commercial reasons.
  • The crypto you receive after mining.
  • You are paid in crypto salary.
  • You are receiving crypto in Airdrop.
  • You are staking crypto.

2 – Capital Gain Taxes in Cryptocurrency

All the profits you make by selling your Cryptocurrency are counted under capital gains. The capital gains are not only limited to selling; they may include other transactions such as gifting, spending, and swapping.

Following are some of the conditions that may include under the Canadian cryptocurrency capital gain tax:

  • Selling your cryptocurrencies for fiat (CAD in the case of Canada)
  • Buying one crypto (for example, Bitcoin) by exchanging another (For example, Ethereum).
  • Using Cryptocurrency to spend on different goods.
  • Using crypto to gift.

3 – Variables Involved in the Canadian Cryptocurrency Taxes

Other than considering Cryptocurrency as a business income and for capital gains purposes, other variables can also affect your taxes.

  • Crypto assets possession period.
  • Your knowledge regarding cryptocurrencies.
  • Your crypto-assets and their connection with your business.
  • The average time you spend engaging yourself in cryptocurrencies.

Keeping Records of Your Cryptocurrency Transactions For Taxes

If you deal with cryptocurrency transactions daily, keeping a record of your daily transactions will be hard.

We’d recommend using software to maintain your crypto transactions daily. However, it is also important to note different metrics that the CRA thinks are important while dealing with crypto transactions.

Some of the general rules by the CRA are mentioned here:

  • Transaction date.
  • All receipts for the transactions (purchase/transfer).
  • Transaction value in the Canadian dollars.
  • Your cryptocurrency wallet address.
  • Mining costs.
  • The legal procedures while calculating all these costs.

Please note that some broad categories are involved while calculating your cryptocurrency taxes. These variables may extend further as well, considering your contextual details.

Tax Evasion Penalties

The CRA mentions that in 2017, they almost caught 408 individuals who evaded taxes. The monetary fine involved was about $44 million and 3103 months behind the jail.  

Since taxes involved in Cryptocurrency are highly complex to understand, we’d recommend consulting a professional CPA to avoid any penalty.

We Can File Your Cryptocurrency Taxes

At AkifCPA, we have maintained years of professionalism while filing taxes. We have been through some tough processes to understand the challenges and legalities of taxation.

If you need any help calculating your crypto taxes, we are here to help. Contact us today; we are just a click away.

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