Things You Should Know About Crypto Taxes

Crypto taxes can be more involved than many people expect.

In Canada, crypto transactions can have tax implications, and what applies depends on the type of transaction and whether the result is treated as a capital gain or loss, or as business income or loss.

The CRA also says crypto users need to keep records and determine fair market value when transactions occur.

Crypto Transactions Can Be Taxable

A common starting point is this: a crypto tax issue often comes up when there is a disposition.

According to the CRA, that can happen when crypto is sold for government-issued currency, traded for another crypto-asset, used to buy goods or services, or transferred by gift or donation. The CRA also notes that moving crypto between wallets you own is generally not a taxable disposition.

Buying Crypto Is Not the Same as Disposing of It

Simply buying crypto with Canadian dollars is not the same as disposing of crypto. The tax issue usually becomes more relevant when that crypto is later sold, traded, gifted, or used to pay for something.

The CRA says gains or losses from dispositions must be reported, and that the value of crypto-assets must be determined when transactions occur.

It May Be Capital or Business Income

The CRA says crypto results may be treated as either capital gains or losses or business income or losses, and those are reported differently.

Whether activity is on income account or capital account depends on the facts, including whether the activity looks like carrying on a business.

The CRA also notes that even a single transaction can, in some cases, be treated as business income if it is considered an adventure or concern in the nature of trade.

Trading One Crypto for Another Can Still Have Tax Implications

Some people think taxes only apply when crypto is converted back into cash.

The CRA says that is not the case. Exchanging one crypto-asset for another can be a disposition and may have tax implications, even if no Canadian dollars are involved in that transaction.

Using Crypto to Pay for Something Can Also Matter

If crypto is used to buy goods or services, the CRA treats that as a barter transaction for income tax purposes. In other words, paying with crypto can still create a tax event.

Mining and Staking Can Be Treated Differently

The CRA says mining and staking can have their own tax treatment. For example, if someone is in the business of mining, the value of the crypto received must be included in business income when it is earned.

The CRA also says rewards credited from staking on a centralized exchange platform will generally be considered income when they are credited to the taxpayer’s wallet on the platform.

Record Keeping Matters

The CRA encourages taxpayers to keep crypto records electronically and to export transaction records regularly.

It also says records should include details such as the type and number of units, the date and time of each transaction, the value in Canadian dollars at the time, the nature of the transaction, wallet addresses used, and beginning and ending wallet balances for each crypto-asset.

Value Has to Be Determined in Canadian Dollars

For tax reporting, the CRA generally accepts a crypto-asset’s fair market value and says a reasonable method should be used consistently from year to year, with records kept showing how the value was calculated.

It also says the total cost at acquisition is needed to calculate gains or losses on disposition.

GST/HST Can Also Come Up

The CRA says some crypto-asset users may also have GST/HST obligations depending on their activities.

This can be especially relevant where crypto is being accepted as payment in a business context or where other taxable activities are involved.

What to Take Away

Crypto taxes are not only about cashing out.

In Canada, tax implications can arise when crypto is sold, traded, used to buy goods or services, gifted, mined, or earned through certain staking activities. The tax result can depend on the facts, the type of transaction, and whether the CRA treats the result as capital or business income. Good records are an important part of reporting accurately.

Because tax treatment depends on individual circumstances, someone who needs advice for their own situation may wish to speak with a qualified tax professional.