A Simple Introduction to Crypto Taxes in Canada

Business Income Requirements

  • You carry on activity for commercial reasons and in a commercially viable way
  • You promote a product or service
  • You show that you intend to make a profit, even if you are unlikely to do so in the short term
  • Examples of cryptocurrency businesses: cryptocurrency mining, trading, exchanges
  • The income tax treatment for cryptocurrency miners is different depending on whether their mining activities are a personal activity (a hobby) or a business activity. This is decided case by case.
  • A hobby is generally undertaken for pleasure, entertainment or enjoyment, rather than for business reasons.

When does Income or Capital Gain Gets Triggered?

  • On Disposition: refers to the way you get rid of something, such as by giving, selling or transferring it.
  • When you use cryptocurrency to pay for goods or services, the CRA treats it as a barter transaction for income tax purposes

Examples

  • 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 Canadian dollars
  • use cryptocurrency to buy goods or services

Keeping Books and Records

  • date of transactions
  • use cryptocurrency to buy goods or services
  • value of the cryptocurrency in Canadian dollars at the time of the transaction
  • digital wallet records and cryptocurrency addresses
  • description of the transaction and the other party (even if it is just their cryptocurrency address)
  • exchange records
  • accounting and legal costs or the software costs related to managing your tax affairs

As a miner

  • receipts for the purchase of cryptocurrency mining hardware
  • receipts to support your expenses and other records associated with the mining operation (such as power costs, mining pool fees, hardware specifications, maintenance costs, and hardware operation time)
  • the mining pool details and records

Cost Base of Crypto

  • Cost: cost at which the taxpayer acquired the property. Original cost of the particular item of inventory (for example, a block of cryptocurrency), plus all reasonable costs incurred to buy that particular block of cryptocurrency.
  • Crypto mining as a business: By interpretation, the cost base for miners seems to be the power cost plus any maintenance cost and mining pool fees
  • Crypto mining as a hobby: For hobbies miners where mining is a hobby is generally undertaken for pleasure, entertainment or enjoyment, rather than for business reasons, the crypto earned from mining is not taxed

This is only a summary and my interpretation of the guidelines. For more details directly from the CRA, please see this article.

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Hi! I'm

Ricky Young

My belief is that financial freedom cannot be obtained by just a 9-to-5, but a combination of smart investing and passive income. This is my journey to achieve financial freedom.

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