How to Declare Cryptocurrencies on your Taxes in Canada
The Essential Guide to Cryptos and Taxes for Canadians in 2022
Tax season is upon us for in Canada, and many of us who’ve invested in cryptocurrencies are a bit baffled about what to do about our taxes. If you’re reading this, you’re probably unsure about how to stay in the Canada Revenue Agency’s good books and correctly declare what needs to be declared.
As I’m not an accountant, I urge everyone to consult the CRA website directly on their guide for cryptocurrency users and tax professionals, and consult with a professional accountant to make sure you’re not going to do anything wrong.
But, in an effort to make things a little easier for you, here are the main things you need to know (and a special bonus resource that I think will make your life a lot easier if you dabbles a lot in cryptocurrencies and multiple exchanges).
Do I need to declare cryptos on my taxes?
Short answer: yes. If you’re going to do things right, and avoid any trouble with the CRA, you should be reporting any gains or income from your cryptos.
There are a number of ways cryptocurrencies might be assessed around the world. In Canada, these are not considered legal tender, but instead a digital asset or commodity.
So for all intents and purposes, the CRA treats these like commodities (like Gold, Silver, Crude Oil, Wheat, Coffee etc). In the same way that you can invest in commodities on the stock market (generally through ETFs), cryptocurrencies can be bought and sold through cryptocurrency exchanges.
Gains are typically declared in one of two different ways:
Business Income:
If you’re an active trader and that’s what you do to earn a primary source of income for yourself. (ie: like a day trader in the stock market)
Capital Gains:
Capital Gains are when you buy an asset and then you sell them at a higher value. This is included in your income for the year, and half of your capital gains are subject to tax (taxable capital gain).
Buying Cryptocurrency is not a taxable event
For all you good HODLers out there, I’ve got some good news for you: buying and holding cryptocurrency is not considered a taxable event in Canada. It is important however to have records of the price you purchased it for to calculate your gains for when you eventually sell.
Note however that if you bought cryptos and then traded them for other cryptos, there are tax implications (as you’ll read below).
What is considered a taxable event?
Essentially, anytime you sell or trade cryptocurrencies, or you purchase something (products, services etc) with your crypto, these are taxable events.
Here are a few examples:
- Selling your Crypto
You bought 1 BTC for $9,000 CAD a year ago and it’s now worth $75,000. First of all, hats off to you my friend, congratulations on an incredible win. Now for the purpose of your taxes, because you sold your Bitcoin in exchange for Canadian Dollars, this is a taxable event. - Exchanging your Cryptos
Are you someone who does a lot of buying/selling/trading on your crypto platforms? Well each time you trade a crypto, the government considers that as a taxable event too. If you’re trading Bitcoin for Ethereum for instance, the way the government considers it is — you are selling your 1 BTC for CAD, then purchasing your ETH (even if you never actually converted to Canadian dollars in between). - Purchasing a Product or Service
Thought you were off the hook with taxes when you decided to buy a Tesla with your Bitcoin? Think again. As soon as you make a transaction with your cryptocurrency in exchange for a product or service, this is considered a taxable event. So essentially, you’re not trading 1 BTC for a Tesla. In the CRA’s perspective, you are selling 1 BTC for $75,000 and buying a Tesla with it (even if you paid for your Tesla directly with Bitcoin)
Ok this is starting to sound like a bit of a nightmare for all those of you who are actually buying/selling different cryptos on your crypto exchanges right? Yeah, tell me about it. It’s scary.
Enter Koinly
When I was worried trying to figure out what to do with my cryptos, I came across this incredibly-simple beautiful app called Koinly. This tool, in my opinion, is like a gift that was sent to us from Santa-shi Nakamoto Claus himself. A one stop shop for all your cryptocurrency tax needs.
For all those of you who use 5 different crypto exchanges and store a bunch of your crypto assets in cold wallets offline and in 10 different other places — you might be terrified like I was.
Well my friend, look no further.
Koinly allows you to consolidate all the cryptocurrency data from 350+ exchanges, 75+ crypto wallets as well as a plethora of other services and export a beautiful report for your taxes. You can either hand your accountant a full-tax report, or you can export a report that you can import directly into Turbotax!
This can be done by exporting your data from your crypto wallets or exchanges (which most crypto exchanges allow), or by connecting the exchange directly via a limited read-only API key.
Can’t find your exchange? No sweat, you can download your transactions file in CSV or Excel format from the exchange import it into Koinly.
Honestly, using this tool was really simple, and such a relief. And when I exported my full tax summary report to give to my accountant, it felt incredible.
I hope that was helpful in getting you to better understand how cryptocurrencies are taxed in Canada. Please feel free to share this article with anyone you think might find it useful.
Like what you’re reading? Buy me a coffee! In the meantime, here are a couple of other related articles you might want to check out!
About Izzy
Iskender Piyale-Sheard (aka Izzy) is the Founder of ClearCareer, a Canadian career coaching program to help job seekers succeed in their career aspirations. In his spare time, he likes to write about career growth, teach himself to code and work on fun community projects.
Find him at: izzydoesizzy.com
Disclaimer:
Some of the links in this article are referral links and may result in me receiving a referral reward or commission. This comes at no cost to you and helps support my business and writing.
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