Crypto assets are treated like “property” in Canada, which means that investors may have to pay taxes to the Canadian Revenue Agency (CRA) in some cases. This is similar to how many other countries treat crypto assets.
If you are a Canadian citizen who sold any of your crypto assets over 2021, the time to start planning for crypto taxes is coming quickly. Tax returns can be filed as early as Feb. 28 up until the deadline of April 30, which is when they have to be done.
When it comes to things like traditional jobs, the filing process is usually very simple. When it comes to cryptocurrencies, though, things get a lot more complicated.
The Senate looked at crypto tax information in 2014, and it suggested that Canada’s top tax agency, the Canada Revenue Agency (CRA), write a guide for how this new form of currency should be treated in the country.
When do people in Canada have to pay taxes on crypto?
Under the rules set by the Canadian Revenue Agency, if you sell or give away any cryptocurrency, you have to pay taxes. “Giving, giving away, or moving” something is called “disposition.” This is what we’re talking about when we talk about a crypto asset in this case. In general, some common crypto dispositions that would be taxed:
- Using cryptocurrency to pay for goods and services.
- Crypto assets can be sold.
- One person trades one cryptocurrency for another (including swaps, exchanges and peer-to-peer trades)
- Cashing out cryptocurrency into real money
- Giving crypto assets to friends, family, or coworkers as a gift
In this definition, crypto transactions are only things that are taxed, and there are no tax requirements for holding crypto. Bartered transactions, such as the sale of cryptocurrenciy, will be taxed by the Income Tax Act because they will be a “barter.”
People who buy and sell cryptocurrency are taxed just like other goods under the Income Tax Act. A crypto transaction can be either business income or capital gain, depending on the type of transaction.
Income from business
Crypto income that is earned as part of a business is taxed as business income. It’s up to each person to decide if their income is business income or not. However, some of the most common signs of business income are:
- Promoting a product or service
- Commercial activities that are done in a “viable way”
- Intent to make a profit, irrespective of whether you’ll likely to do so in the near future or not.
- Acting like a business, such as preparing a business plan and acquiring inventory.
Even though business can be thought of as happening all the time, sometimes a single transaction can bring in money for the business. Because each case is different, the CRA will look at the “adventure or concern in the nature of the trade.” This may sound complicated, but it can be easier than you think. The CRA has given more advice on how to figure out if you’re running a cryptocurrency business and what kinds of businesses you might run, like:
- Running a cryptocurrency exchange
- Crypto mining operations
Capital gains
Because selling a cryptocurrency doesn’t make you business income, the CRA thinks you made a capital gain. Capital gains are income for your tax year, but only half of them are taxed.
How much crypto tax do you pay in Canada?
What is called the inclusion rate (IR) is how much of your capital gains and capital losses you have to pay in taxes. This is made up of taxable capital gains and allowed capital losses. IR has changed many times, but it is now 50% of your total IR (taxable capital gains – allowable capital losses).
Most of the time, the income tax rates for different provinces in Canada will be very different. Income that qualifies for the federal small business deduction is usually taxed at a lower rate than income that isn’t. Typically, provinces can set their own maximum business limit for this income. Most people, however, use the federal business limit as a guide. In the case of a business that makes more money than the limit, it has to pay the higher rate of tax. The rate table looks like this:
Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.
