Wondering what happens if you don't pay crypto taxes in Canada? Your hard-earned crypto gains could be washed away with just one fine from the Canada Revenue Agency; Koinly is here to make sure you don’t end up on the wrong side of the crypto tax rules.
No one likes paying tax, especially when we’ve smashed our returns target on our Crypto investments, right? But the Canada Revenue Agency (CRA) has made it abundantly clear that tax-avoiding crypto investors will face hefty fines, all your gains and more could be wiped out with one swift audit.
In this guide, we’ll give you all the information you need about the Canadian government's stance on crypto taxes and the pitfalls and penalties of crypto tax evasion and avoidance.
What happens if you don't pay crypto taxes?
Wondering what happens if you don't pay taxes on crypto in Canada? The short answer is you’ll end up with a hefty fine or worse. Even though the cryptocurrency market is still in its infancy, the CRA has accepted that Bitcoin and many of the alt-coins are here to stay. As a result, the CRA treats tokens and NFTs the same as stocks and, as a result, expects you to pay Capital Gains Tax or Income Tax on your investments.
Failing to pay your crypto taxes will most likely lead to the tax agency requiring you to pay what you owe, along with a nasty slab of interest on top and a filing penalty. Essentially you could end up losing all your gains… and then some.
When does the CRA tax crypto?
The way the CRA will tax your crypto depends on how they categorize your crypto holdings.
- Income Tax: If you’re getting paid in crypto, then every transaction will be taxed the same way as standard Income Tax. The CRA also applies Income Tax to so-called ‘barter transactions’. You can find out more about these on the CRA’s official site.
- Capital Gain Tax: if you trade crypto, swap tokens, or gift coins, the CRA will expect you to pay Capital Gains Tax on any profits.
When doesn’t the CRA tax crypto?
The CRA’s list of taxable crypto activities is pretty extensive, but there are still some instances that they don’t consider taxable, such as:
- Buying crypto with fiat.
- Moving crypto between your personal wallets.
- Receiving crypto as a gift.
- Creating a decentralized autonomous organization (DAO).
We’ve given you a brief summary here on how you can expect the CRA to tax your crypto; if you want to get a more in-depth understanding of this area, check out Koinly’s Crypto Tax Canada guide.
Why can’t you just hide your crypto from the CRA?
Even though cryptocurrencies such as BTC, ADA, and ETH aren’t controlled by a central authority that can report you to the CRA, don’t be fooled into thinking the tax man doesn’t know what's in your wallet.
In January 2022, the CRA announced that all crypto services are required to report any transactions over $10,000 and increased the pressure on companies to obtain Know-Your-Customer (KYC) data from customers.
The regulations mean that despite the decentralized nature of crypto, you’re going to really struggle to keep your tokens hidden from the tax authorities.
The CRA isn’t messing about, and you need to ask yourself if avoiding tax is worth the risk. Koinly is here to help you stay within the CRA’s parameters. Before getting into how Koinly can help you, let's find out how much you will be taxed.
What’s the penalty for crypto tax evasion in Canada?
The penalty for crypto tax evasion in Canada is pretty severe and can even result in a jail term. The CRA’s website lists the following potential penalties for tax evasion:
- A fine equivalent to 200% of the taxes evaded and the amount evaded on top.
- Up to five years in jail.
- For tax fraud, the maximum prison sentence is 14 years.
- Travel restrictions
It’s also worth noting that the CRA has a near 90% conviction rate and has issued over $3 million (CAD) in fines.
Okay, so how much tax will you have to pay?
As a Canadian taxpayer, you will be hit with both a Federal Income Tax and Provincial Income Tax. You can check both the Federal and Provincial tax rates in our Canada Crypto Tax Guide
What happens if I’ve previously avoided crypto taxes?
It’s possible that you’ve accidentally failed to pay your crypto tax in the passed; don’t panic you can avoid future penalties through the voluntary disclosure program (VDP). The CRA’s VDA offers case-by-case amnesty to people who voluntarily come forward to rectify past failures to file their taxes.
You should consider applying for the VDP if:
- You’re late on a tax return.
- Under reported or didn’t report crypto income.
- Submitted incomplete or incorrect information
- Submitted an incorect expenses claim.
For a full list of VDP eligibility criteria and to apply for a VDP, you should visit the CRA’s official VDP site.
Why is Koinly the ideal crypto tax software for you?
Koinly’s crypto tax calculator is built on the premise that crypto investors need an easy-to-use tax calculator that removes the red tape that often overwhelms and even discourages people from paying taxes.
Some of the features Koinly offers include:
- Simple and user-friendly UI.
- Market leading integrations.
- Availability in dozens of countries.
- CRA compliant tax reports.
If you’re worried that we’re being biased, read our reviews on Trustpilot, where we rank at the top of the list for Crypto Tax providers, and to learn more about how Koinly crypto tax calculator works or to try it for yourself, visit our site.