You’re not the only one learning
When trying to wrap your head around how this asset is taxed, it’s helpful to understand that the Canadian tax system is designed to capture a share of your capital gains — the difference between what you originally paid for something and its current fair market value — on all the assets you own. With that in mind, simply holding cryptocurrencies doesn’t have any tax implications.
You can leave it sitting in your digital wallet, which is essentially a software system designed to manage your online transactions and assets.
But once you use, sell or gift your crypto, you’ll owe the CRA a cut.
Many Canadians aren’t prepared for that. A 2022 survey from Wealthsimple found that of those who reported being worried about filing their taxes, 26% of crypto traders told Wealthsimple it was because they don’t know how to claim capital gains.
“I think this survey supports this was the first year that many Canadians dipped a toe into crypto,” says Evan Thomas, head of legal for Wealthsimple Crypto in Toronto. “And just by nature of it being new … taxes were not the first thing that leapt to their minds, which is perfectly fair.”
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How you’ll be taxed on personal crypto use
You’re going to be on the hook for any additional income you make by using or selling crypto. How the CRA taxes that income depends on whether it’s a business or personal transaction.
For non-business transactions, your profits — or the difference between what you paid for it and its fair market value when you dispose of it — are treated as capital gains. And 50% of those gains will be subject to tax, at a rate based on your income bracket.
Let’s say you used $500 worth of Bitcoin last year to buy furniture from an online seller. When you first picked up that cryptocurrency, it was only worth $300 — which means you realized a capital gain of $200.
Half of that gain is taxable, which means that $100 will be added to your income and subject to the same marginal tax rate as the rest of your earnings.
It’s the same process you undertake when selling securities, such as stocks, but Thomas adds most people are used to their investment professionals preparing their tax slips for them.
Unfortunately, because many crypto platforms don’t offer the same service, some Canadians may now be scrambling to include their crypto transactions on this year’s taxes.
“The good news is that even if you didn't keep records of them, generally those records can be obtained,” says Thomas. “By definition, the blockchain is permanent. And public — that information is always there, it might be a little challenging to get it, but it's always there.”
This is the digital ledger — or the blockchain. That’s because cryptocurrency transactions operate kind of like email — they’re signed using cryptography and sent through the network for verification. The blockchain then stores all transaction information and keeps it as a matter of public record, which you should be able to access through your trading platform.
How you’ll be taxed for business income
You don’t have to own a business for the CRA to treat your crypto earnings as business income.
“It really depends on the level of investment — and I'm not talking about the money,” says Yannick Lemay, a training specialist with H&R Block in Calgary.
Essentially, if you’re buying and selling these assets to make a profit, it may be taxed as business income — even if it’s just a one-time thing. And unlike capital gains, 100% of your profits will be taxable.
The CRA also expects a share if your business accepts crypto as a form of payment. If the property or service you exchanged for crypto would otherwise be taxable, it’ll apply GST/HST based on the fair market value of the item.
Making tax time easier next year
If it seems overwhelming, Lemay says that getting into the simple habit of tracking your movements will save you some trouble next year.
“Especially if you do a lot of cryptocurrency transactions, sometimes people don't have the history behind those transactions and that’s very important when it comes time to calculate capital gains,” says Lemay.
And if you’re still uncertain, the CRA has a number of online resources for crypto traders to help sort out how to track transactions, how to value them, and specific examples of how the CRA taxes these assets.
“I think once people sit down and do it … it'll turn out to be less intimidating than it appeared,” says Thomas. “But it is something that people have to work through for the purpose of getting their tax return done.”
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