The Canada Revenue Agency (CRA) issued a guide to address Bitcoin tax in Canada. As such, if you exchange Bitcoin for goods, services, or other cryptocurrencies, you need to be fully aware of your tax obligations. What’s more, complying with your taxes will save you from the wrath of the law.
How the CRA Views Cryptocurrency
According to the CRA, cryptocurrency is not a legal tender although it is medium of exchange for goods and services. The CRA regards Bitcoin or crypto as a commodity that can yield business income or capital gain. In the same vein, it also acknowledges that capital losses are made from trading Bitcoin.
Furthermore, the Bitcoin Tax Treatment in Canada regards cryptocurrency transactions that are not ‘business activities,’ non-taxable. Also, when it comes to the taxation of Bitcoins in Canada, crypto assets are valued differently. As such, the tax to be paid for Bitcoin may vary from that of Ethereum, Litecoin, etc.
Taxable Bitcoin Transactions in Canada
According to the CRA, the Bitcoin tax in Canada is specific to how they are acquired and disposed of.
1. Bitcoin Acquisition:
As recognized by the CRA, Bitcoin can be acquired through:
- Bitcoin mining
- Buying Bitcoin from a cryptocurrency exchange (even if it is an international exchange) using fiat
- Receiving Bitcoin as payment for goods and services
The tax consequences for each of these activities may vary depending on the method of acquisition.
2. Bitcoin Disposal:
Disposition involves giving out, selling, or trading Bitcoin. Therefore, Canadian taxpayers who dispose of Bitcoin in the following ways will be taxed:
- Gifting Bitcoin
- Selling Bitcoin
- Purchasing goods or services with Bitcoin
- Exchanging Bitcoin for another cryptocurrency
- Converting Bitcoin to Canadian dollars or any other government-issued fiat
On the other hand, no tax required for storing/holding bitcoin.
How to Value Bitcoin Used to Pay for Goods and Services
The CRA considers transactions where Bitcoin is used as a currency to purchase goods and services as a barter transaction. This type of transaction is valued using the fair market value of the product or service as of when it was purchased. That being the case, a taxpayer needs to file the full cost of the product in their income tax return.
How to Value Bitcoin Used to Speculate
Bitcoins used for speculations on cryptocurrency exchanges are considered as business income or capital gain. As a taxpayer, you need to ascertain if a cryptocurrency activity resulted in an income or capital gain.
1. Capital Gain:
A Canadian taxpayer who buys Bitcoin (for example, $1,000) and sells it at a price ($1,500) higher than its purchase price has made a profit ($500). This profit is a capital gain and needs to reflect in the individual’s income tax return. However, only a certain percentage of that profit will be taxed.
2. Business Income:
The CRA may access a Canadian taxpayer who continues to trade Bitcoin for profit repeatedly as speculating Bitcoins as a business. Thus, the gains made by the taxpayer is added to their income as business income.
You can learn more about the Bitcoin tax in Canada on the CRA’s website. There is also a Bitcoin tax calculator that makes the whole process of calculating your crypto taxes easier.