Canada's 2024 tax season is here! As has been the case in previous years, the Canada Revenue Agency (CRA) is diligently ensuring that all Canadian taxpayers are accurately reporting their cryptocurrency transactions. In light of this, Coinsquare is offering our customers a comprehensive guide on how cryptocurrencies are accounted for in Canadian taxation.
Please note that nothing in this guide is intended to be formal tax advice. It is important that you consult with a registered tax advisor or other financial professional regarding your tax situation. This guide is for informational purposes only.
According to the CRA's cryptocurrency policy, “any income from transactions involving cryptocurrency is generally treated as business income or as a capital gain, depending on the circumstances”. This suggests that clients bear a responsibility to report to the CRA, and every person is required to specify if they are declaring their activity for taxation as business income or capital gain/loss.
You might be wondering, what cryptocurrency activities are deemed taxable? Do I have to pay taxes just for purchasing crypto? How about when I sell? Or exchange one cryptocurrency for another?
If you’re simply buying and holding, no need to worry. The CRA has clarified that “owning or retaining a cryptocurrency is not subject to taxation”. Tax implications only surface when you execute a 'disposition'. This refers to when you sell, trade, transfer, or gift your cryptocurrency to someone else.
As per the CRA guidelines, taxable cryptocurrency events may include:
If you've carried out any of these activities in the previous year, you may need to report it to the CRA.
In certain cases, you may be obligated to declare your earnings from cryptocurrency trading as business revenue, instead of the usual capital gain. The CRA might also retrospectively classify your cryptocurrency transactions as business income rather than capital gains. While this is not a common occurrence, it can result in the profits being taxed at a higher rate. The CRA utilizes various criteria to ascertain if cryptocurrency trading profits should be categorized as investment returns (capital gains) or income from an active business operation (business income). These criteria encompass:
If any of these criteria aligns with your cryptocurrency trading methods, there's a possibility that the CRA will treat your earnings as business income. In such scenarios, we advise reaching out to a tax expert who can assist you in determining whether your cryptocurrency profits should be reported as business income.
Reporting Capital Gains/Losses
Typically, investors declare their cryptocurrency transactions as capital gains or losses. If you have sold a cryptocurrency at a higher price than what you bought it for, resulting in a profit, this is known as a capital gain. Generally, capital gains from the sale of cryptocurrency are included in the annual income, but only half of the capital gain is taxable. This is referred to as taxable capital gain.
If you sold a cryptocurrency at a lower price than your purchase price, you've experienced a capital loss. Any capital losses from the sale can only be offset against capital gains; they cannot be used to decrease income from other sources like employment income.
If you don't have any capital gains to offset these losses for the current year or any of the past three years, you can carry forward your capital losses.
To calculate your capital gains or losses, you need to compare the selling price of your cryptocurrencies to your adjusted cost base, which is the initial purchase price plus any fees or commissions paid.
Coinsquare simplifies the process of trading one cryptocurrency for another. Each exchange between cryptocurrencies is viewed as a "disposition" of the currency you're selling and is therefore a taxable event.
The same regulations apply to both crypto-to-crypto trades and crypto-to-fiat trades. You would need to determine the value of the received cryptocurrency in CAD, compare that to the dollar amount you used to purchase the sold cryptocurrency, and declare the resulting profit or loss on your tax returns as either a capital gain or business income.
For instance, let’s say you bought 1 Bitcoin for $10,000 CAD. Sometime later, you decide to use that Bitcoin to buy Ethereum via Coinsquare. By that time, the worth of your 1 BTC has increased from $10,000 CAD to $20,000 CAD. When you make the trade for ETH, you are considered to have 'disposed' of your BTC at a value of $20,000, leading to a capital gain of $10,000 that needs to be declared.
Coinsquare users can download their tax summaries directly from their profile. To access your reports, simply follow this guide.
You can either provide these reports to a tax professional or upload them yourself to a personal tax software.
Keep in mind that these reports only capture your transactions linked to your Coinsquare account. If you have used other exchanges alongside Coinsquare or before switching to Coinsquare, you'll need to download similar reports from those platforms as well.
Cryptocurrency taxes can be complex, but Coinsquare strives to provide the right information to make this process easier.
For more information, we recommend that you visit the CRA’s official guidance on cryptocurrency taxes and obtain the services of a registered tax professional if necessary.
