Disclaimer: This page is for general information purposes only and should not be used as a substitute for consultation with tax professionals. The Canadian Income Tax Act does not explicitly address the various cryptocurrency transactions and resulting tax implications. Guidance from the Canada Revenue Agency (CRA) may be supported or challenged by Canadian courts.

Is cryptocurrency taxable?

Cryptocurrency is treated as commodities for Canadian tax purposes. Income from crypto transactions is treated as either capital gain/loss or business income, depending on the situation and individual’s intent. In general, users need to report a transaction on their Canadian personal income tax return when they dispose of cryptocurrency. On the website of CRA, disposition of cryptocurrency means as follows:

  • Sell or make a gift of cryptocurrency
  • Trade or exchange cryptocurrency, including disposing of one cryptocurrency to get another cryptocurrency
  • Convert cryptocurrency to government-issued currency, such as Canadian dollars
  • Use cryptocurrency to buy goods or services

How is my cryptocurrency taxed?

Basically, if you are a typical crypto investor, who treats trading cryptocurrency as a hobby, your taxable income will be calculated by using the proceeds less the adjusted cost base of the crypto-times 50%. Any income from the disposition is considered as capital gain, which is subject to tax.

On the other hand, if you are running a crypto business (not hobby intent), the income from disposition would be considered as business income/loss. At this time, Crypto.com Tax does not support business intent transactions. Therefore, this may not be the right tool for you if your crypto transactions constitute business activities as opposed to hobby transactions.

Cryptocurrency tax deadline

Taxable Cryptocurrency transactions need to be reported on your Canadian personal income tax return (T1 General). The deadline to file your return and pay your taxes is April 30, 2021. If you are self-employed, the deadline for filing your Canadian income tax return is June 15, 2021. However, The deadline for tax payment is still April 30, 2021.

How do I file crypto tax reports?

Crypto.com Tax is a user-friendly tax product to generate tax reports for tax filing. Please follow the below steps to finish the crypto tax filing.

1. Register your account in Crypto.com Tax

2. Import your transactions in our product in 4 ways:

3. Generate the below tax reports on the page of Tax Reports :

  • Capital gain/loss csv file, including the amount of Proceeds, Cost basis, Selling expense and Capital gain/loss for completing the Schedule 3 (Please attach the form to your individual Canadian tax return.)
  • Transaction history csv file for keeping the books and records

4. After completing Schedule 3, users can attach it with the individual tax form (T1) for completing the tax filing

Tax Rules on Crypto Transactions

Buying cryptocurrency (e.g. CAD → BTC)

Buying cryptocurrency is not considered a taxable event. However, it’s extremely important to keep track of the acquisition cost (with associated fees), as it becomes the cost basis of the cryptocurrency and will be used for calculating capital gains/losses for subsequent taxable events (i.e. dispositions etc.)

Selling cryptocurrency (e.g. BTC → CAD)

Selling cryptocurrency for fiat currency is considered a taxable event. The capital gains/losses can be calculated by subtracting the cost basis and the associated fees (Discuss more details in the below fee session) from the proceeds.

Example:

  • Buy 10 ETH for CAD 10,000
  • Sell 5 ETH for CAD 10,000

Results:

  • Cost basis per coin: CAD 10,000/10 = CAD 1,000 per ETH
  • Proceeds: CAD 10,000
  • Total cost basis for 5 ETH: CAD 1,000 * 5 = CAD 5,000
  • Capital gain/loss: CAD 10,000 - 5,000 = CAD 5,000

Trading one cryptocurrency for another (eg. BTC → ETH)

Selling cryptocurrency for another cryptocurrency is considered a taxable event. The capital gains/losses can be calculated by subtracting the cost basis from the FMV (fair market value) of the coins you receive.

Example:

  • Buy 10 ETH for CAD 10,000
  • Sell 5 ETH for 1 BTC (FMV per BTC is CAD 12,000)

Results:

  • Cost basis per coin: CAD 10,000/10 = CAD 1,000 per ETH
  • Proceeds: CAD 12,000
  • Total cost basis for 5 ETH: CAD 1,000 * 5 = CAD 5,000
  • Capital gain/loss: CAD 12,000 - 5,000 = CAD 7,000

Sending cryptocurrency to others

Payment

Paying cryptocurrency for services and goods is considered a taxable event. It is considered a barter transaction explained by CRA. The capital gains/losses can be calculated by subtracting the cost basis from the FMV (fair market value) of the coins you send.

Example:

  • Buy 10 ETH for CAD 10,000
  • Send 5 ETH for some service (FMV per ETH is 2,000)

Results:

  • Cost basis per coin: CAD 10,000/10 = CAD 1,000 per ETH
  • Proceeds: CAD 2,000 * 5 = CAD 10,000
  • Total cost basis for 5 ETH: CAD 1,000 * 5 = CAD 5,000
  • Capital gain/loss: CAD 10,000 - 5,000 = CAD 5,000

Gift

Sending a gift is similar to disposing of the coins which is subject to capital gains/losses. It is calculated by subtracting the cost basis of the coin from the FMV of the cryptocurrency on the date of gifting.

When the cryptocurrency is ultimately sold by the recipient of the gift, the proceeds of disposition is the FMV on this date.

Example:

  • Buy 10 ETH for CAD 10,000
  • Send 5 ETH to friends as a gift (FMV per ETH is CAD 2,000)

Results:

  • Cost basis per coin: CAD 10,000/10 = CAD 1,000 per ETH
  • Proceeds: CAD 10,000
  • Total cost basis for 5 ETH: CAD 1,000 * 5 = CAD 5,000
  • Capital gain/loss: CAD 5,000

Donations

Based on the current CRA interpretations, the CRA allows donations of specified capital assets without recognition of the capital gain to a qualified donee (e.g. registered charities in Canada).

However, cryptocurrency is not included within the list of specified assets and it is subject to capital gains/losses. It is calculated by subtracting the cost basis of the coin from the FMV of the cryptocurrency on the date of donation, less amount or benefit received or receivable from the charity. In order to qualify for a donation credit in Canada, a charitable donation receipt must be issued by the receiving organization, with adherence to the appropriate Canada Revenue Agency requirements: the receiving organization must generally be a registered Canadian charity. This receipt should be reported on Schedule 9 - Donation and Gifts and attach it to your individual Canadian income tax return (T1).

Example:

  • Buy 1 BTC for CAD 10,000
  • Donate 1 BTC worth CAD 20,000 to a charity

Results:

  • Capital gain/loss: CAD 20,000 - CAD 10,000 = CAD 10,000
  • CAD 20,000 may be tax deductible and should be reported as a donation

Receiving cryptocurrency other than direct purchase or transfer

Receiving cryptocurrency is generally not considered a taxable event until its subsequent disposal assuming the receipt is not related to the performance of services e.g. employment income. This will apply to multiple cases, including forks, airdrops, mining, and receiving rewards (e.g. staking rewards or cashbacks). That means all the cryptocurrency you receive does not result in any increase or decrease in the total cost basis of existing cryptocurrency holdings. Considering the new cryptocurrency received, your average cost basis per unit may change... However, they will be subject to capital gains/losses at future dispositions. The gain/loss is calculated by subtracting the zero-cost basis from the FMV of the cryptocurrency on the date of disposition.

Mining

In general, the mining income is not taxable at the time of receipt. However, it is subject to capital gains/losses at dispositions. The gain/loss is calculated by subtracting the zero-cost basis from the FMV of the cryptocurrency on the date of disposition.

If the cryptocurrency is considered to be a capital asset (mining as a hobby) then current expenses such as maintenance, repair or utility costs cannot be taken as a deduction to the resulting capital gain/loss.

Example:

  • Receive 10 ETH from mining
  • Sell 5 ETH for 1 BTC (FMV per BTC is CAD 12,000)

Results:

  • Cost basis per coin: 0 per ETH
  • Proceeds: CAD 12,000
  • Total cost basis for 5 ETH: 0
  • Capital gain/loss: CAD 12,000

Forks

A hard fork takes place when there is a split on the new cryptocurrency that you currently hold. Similar to mining, the new coins you received from the hard fork have a 0 cost basis and are subject to capital gains/losses when you dispose of it. The calculation of capital gains/losses is the same as mining.

In addition, a soft fork does not create a new coin so you do not receive any income when it happens.

Airdrops

Airdrops are basically some free coins you received from a marketing campaign or events.

In general, coins from airdrops are not taxable at the time of receipt. However, they are subject to capital gains/losses at dispositions. The calculation of gain/loss is the same as that of mining.

Rewards

You can get crypto rewards in several ways, including but not limited to:

  • Stake rewards/bonus
  • Cashback - credit card companies giving you cryptos
  • Referral bonus

In general, the reward income is not taxable at the time of receipt. However, it is subject to capital gains/losses at dispositions. The calculation of gain/loss is the same as mining.

Gift

The cost basis for cryptocurrency received as a gift is the FMV on the date of receipt. The rationale here is that the individual gifting the cryptocurrency would have been responsible for addressing taxation issues for the cryptocurrency at the FMV on the date they disposed of the cryptocurrency.

When the cryptocurrency is ultimately sold by the recipient of the gift, the proceeds of disposition are the FMV on this date.

Example:

  • Receive 10 ETH from friends as gift (FMV per ETH is CAD 1,000)
  • Sell 5 ETH for 1 BTC (FMV per BTC is CAD 12,000)

Results:

  • Proceeds: CAD 12,000
  • Total cost basis for 5 ETH: CAD 1,000 * 5 = CAD 5,000
  • Capital gain/loss: CAD 7,000

Payment (Salary)

If the cryptocurrency received is a payment to you as a form of compensation, it may be considered as your salary. The FMV of the received coins become taxable employment income of that year and should be reported on Income Tax and Benefit Return (T1) from the Statement of Remuneration Paid (T4). If you do not receive your T4 statement from your employer, you should either get it from the registered CRA online account or estimate your income manually with supporting financial statements.

Each individual is responsible for calculating and reporting income on their Canadian tax return even if a payor has not supplied appropriate documentation. The FMV of the cryptocurrency received as salary will be the cost basis for future disposition.

Example:

  • Receive 10 ETH as salary (FMV per ETH is CAD 1,000)
  • Sell 5 ETH for 1 BTC (FMV per BTC is CAD 12,000)

Results:

  • Proceeds: CAD 12,000
  • Total cost basis for 5 ETH: CAD 1,000 * 5 = CAD 5,000
  • Capital gain/loss: CAD 7,000
  • CAD 10,000 should be reported as employment income at the time of receipt

Transferring cryptocurrency between your own accounts

Transferring cryptocurrency between your own accounts is generally not considered a taxable event when the associated fee is in fiat. However, a portion of the transaction may be taxable if the associated fee is in cryptocurrency as there will be a difference between the FMV of the cryptocurrency disposed to settle the fee versus its adjusted cost basis. See additional information on fees below.

Also, it is important to keep track of the cost basis with the associated fee for this transaction. Note that most transfers involve transaction fees, which can change the cost basis. Please refer to the following “fee treatment” section for more details.

Margin trading

Margin trading of cryptocurrency involves capital gain/loss including the below cases:

  • Closing the position
  • Payment of interest by cryptocurrency
  • The forced sale of your collateral by exchanges

Crypto.com Tax does not support margin trading transactions at this moment. Please consult your tax advisor if you’re actively involved in margin trading.

Other Tax Rules

Fee treatment

Fees can show up in all kinds of cryptocurrency transactions and is often the most cryptic part when calculating taxes. To understand the fee treatment thoroughly, we need to consider the following two cases.

Fee in nontaxable events (e.g. buy, transfer)

Typically in a nontaxable event, the FMV of the fee will be added to the cost basis of the resulting coins. The idea is simple - the fees you pay are saved for your future benefits, as they will be considered as part of the cost basis when a disposition happens, offsetting the capital gain.

Example 1:

  • Buy 10 ETH for CAD 10,000, with a purchase fee of CAD 100

Results:

  • Cost basis per coin: CAD (10,000 + 100) / 10 = CAD 1,010 per ETH

Example 2:

  • Buy 10 ETH for CAD 10,000 in account A
  • Transfer 5 ETH from account A to account B, with a transfer fee of CAD 50

Results:

  • Cost basis per coin in account A: CAD 10,000/10 = CAD 1,000 per ETH
  • Cost basis per coin in account B: CAD (1,000 * 5 + 50) / 10 = CAD 1,010

Fee in taxable events (e.g. sell, trade)

In a taxable event, the FMV of the fee is considered as an expense, which is typically deducted from the proceeds.

Example:

  • Buy 10 ETH for CAD 10,000
  • Sell 5 ETH for CAD 10,000, with a selling fee of CAD 100

Results:

  • Cost basis per coin: CAD 10,000/10 = CAD 1,000 per ETH
  • Proceeds: CAD 10,000
  • Total cost basis for 5 ETH: CAD 1,000 * 5 = CAD 5,000
  • Total expense: CAD 100
  • Capital gain/loss: CAD 10,000 - 5,000 - 100 = CAD 4,900

What if your fee is in cryptocurrency?

This is the most confusing part of all, but we have you covered. When your fee is in cryptocurrency, it should be valued at FMV and will separately result in a capital gain/loss as it is considered a disposition of capital property. Therefore your transaction can contain up to 2 capital gains/losses, and they should be separately listed on your transaction records. Nevertheless, if your transaction is non-taxable, you’ll just need to calculate the capital gain/loss from the fee, and the FMV of the fee will be added to the resulting coin's adjusted cost basis.

Example 1:

  • Buy 10 ETH for CAD 10,000 in account A
  • Transfer 5 ETH from account A to account B, with a transfer fee of 0.1 ETH
  • Assume the ETH price has gone up to CAD 2,000 on the day of transfer

Results:

  • Cost basis per coin in account A: CAD 10,000/10 = CAD 1,000 per ETH
  • Cost basis per coin in account B: CAD (1,000 * 5 + 0.1 * CAD 2,000) / 5 = CAD 1,040 per ETH
  • Capital gain/loss from the fee = CAD (2,000 - 1,000) * 0.1 = CAD 100

Example 2:

  • Buy 10 ETH for CAD 10,000
  • Sell 5 ETH for CAD 10,000, with a selling fee of 0.1 ETH
  • We know the ETH price is CAD 2,000 on the day of sell

Results:

  • Cost basis per coin: CAD 10,000/10 = CAD 1,000 per ETH
  • Proceeds: CAD 10,000
  • Total cost basis for 5 ETH: CAD 1,000 * 5 = CAD 5,000
  • Total expense: CAD 2,000 * 0.1 = CAD 200
  • Capital gain/loss from the transaction: CAD 10,000 - 5,000 - 200 = CAD 4,800
  • Capital gain/loss from the fee: CAD (2,000 - 1,000) * 0.1 = CAD 100
  • Total capital gain/loss: CAD 4,800 + 100 = 4,900

Superficial loss rule

Superficial loss may rule disallow a loss from the disposition if there was a purchase that is 30 days before or after a sale transaction. The intent is to prevent individuals from taking advantage of timing and temporary losses.

Superficial loss rule happens when the below 2 conditions are met:

  1. You, or a person affiliated with you, buys, or has a right to buy, the same or identical property (called "substituted property") during the period starting 30 calendar days before the sale and ending 30 calendar days after the sale.
  2. You, or a person affiliated with you, still owns or has a right to buy, the substituted property 30 calendar days after the sale.

In the real world, the superficial loss rule usually happens when the first condition is fulfilled. Crypto.com Tax will display a warning message in the interface for all the transactions that potentially meet the superficial loss rule. Please consult your tax advisor and adjust the transactions at your own discretion.

Foreign property regulations

The CRA requires you to file the Foreign Income Verification Statement (T1135) if you own more than CAD100,000 of “specified foreign property” in aggregate during the year. Some of the cryptocurrencies may fall into the list of “foreign property”, depending on where it is located and not necessarily in the country represented by the fiat currency. Please check the former link and determine whether you need to fill the form.

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