Canada has a well-developed cryptocurrency market with numerous regulated exchanges and a growing number of cryptocurrency investors. As cryptocurrency becomes increasingly mainstream, the subject of cryptocurrency taxes is becoming ever more relevant. In this article, we will provide a quick explanation of crypto taxes in Canada and address some of the most common questions Canadian crypto users have about taxes.
What are the crypto taxes in Canada?
In Canada, income from cryptocurrency-related transactions is either considered as a capital gain or as business income.
50% of the capital gain made from cryptocurrency investing is taxable. For example, if you purchased $10,000 worth of Bitcoin and sold it for $15,000 after it increased in price, taxes would only apply on $2,500 of your profit (you still have to report the entire $5,000 gain).
On the other hand, 100% of the business income from cryptocurrency is taxable. The more active you are as a cryptocurrency trader and the higher your profits, the greater the likelihood that your crypto profits will be considered business income rather than capital gains.
In Canada, capital gains from cryptocurrency investing are subject to the same tax rates as the federal income tax and the provincial income tax. Here is the federal income tax breakdown for 2024:
Of course, there are also provincial and territorial tax rates that apply in addition to the federal income tax. For a full breakdown of provincial and territorial tax rates, please consult this article.
With the exception of Quebec, the provincial income tax in all provinces is calculated in the same way as the federal income tax.
Taxable and non-taxable events for crypto investors in Canada
Here is a brief summary of taxable events that are relevant for crypto investors in Canada:
- Selling cryptocurrency for fiat currency
- Trading a cryptocurrency for another kind of cryptocurrency
- Using cryptocurrency to purchase goods and services
- Gifting cryptocurrency
- Receiving rewards through cryptocurrency mining or staking
Now, let’s take a quick look at the types of crypto transactions that aren’t taxable in Canada:
- Buying cryptocurrency with fiat currency and holding it
- Receiving a gift in the form of cryptocurrency
- Transferring cryptocurrency between two of your own crypto wallets
- Creating a DAO (decentralized autonomous organization)
How can you calculate your crypto taxes in Canada?
As we’ve mentioned above, there’s several taxable events related to cryptocurrency that Canadian crypto investors and traders must be aware of. In order to report your crypto taxes correctly, you have to track the difference between the value of your cryptocurrency when you bought it and its value when you sold it, traded it, spent it, or gifted it.
The first step is to calculate the cost basis of your cryptocurrency investment. The cost basis consists of the cost of the cryptocurrency plus any transaction fees or expenses you had to pay to acquire it.
Once you have determined your cost basis, subtract this amount from the price at which you sold your cryptocurrency to find out if you have a capital gain or loss. If you didn’t sell your cryptocurrency – for instance, if you used it, gave it as a gift, or exchanged it – then subtract your cost basis from the cryptocurrency’s fair market value in CAD on that day.
You can significantly simplify your cryptocurrency tax reporting by using dedicated cryptocurrency tax software.
Can you offset losses from crypto in Canada?
Yes, you can deduct half of your capital losses from crypto against your taxable capital gain. Please keep in mind that you cannot allowed to deduct capital losses against other forms of income (for example employment income).
If your capital losses exceed your capital gains in a given year, the difference can be applied against your capital gains for other years. You can carry net capital losses forward indefinitely or carry them back for a period of three years.
Can the CRA track crypto?
Some people have the misconception that cryptocurrencies are anonymous and that they can use them to avoid paying taxes. The reality is that authorities can track cryptocurrency activity in great detail thanks to blockchain analysis tools, and they can also request information from cryptocurrency exchanges.
Crypto exchanges in Canada are required to report all transactions above $10,000 to the CRA. However, exchanges are also required to keep information about transactions under $10,000, and disclose the information to authorities if requested to do so.
To sum it up, you should assume that the CRA is aware of all of your cryptocurrency activity, and you should report your crypto transactions accordingly.
The bottom line
Perhaps the most interesting aspect of cryptocurrency taxes in Canada is that only 50% of the capital gain made from cryptocurrency transactions is taxed. However, if the income is determined to be business income, it is taxed in full. If you’re an active cryptocurrency trader and have made substantial profits, there’s a chance your cryptocurrency gains could be classified as business income.
It’s important to understand that selling cryptocurrency, trading it for another crypto or even spending it to acquire goods and services are all considered taxable events in Canada and you should track your capital gain / loss when making any such transactions. Meanwhile, simply buying and holding cryptocurrency is not a taxable event.
If you’re looking to start a crypto business in Canada or have made complex cryptocurrency transactions, you might benefit from the services of a crypto tax accountant.
