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Canada Crypto Tax Guide

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Crypto Tax Canada: Ultimate Guide 2022

Last updated: Thursday, 9 December 2021

Not sure how crypto is taxed in Canada? The Canada Revenue Agency has released guidance on cryptocurrency taxes in Canada - but they're not always straightforward. You'll pay either Capital Gains Tax or Income Tax on your crypto depending on whether your investment is seen as business income or a capital gain. Of course, that doesn't make things much clearer. Don't worry, we're breaking down everything you need to know about cryptocurrency taxes in Canada in our Canada Crypto Tax 2022 Guide, including how crypto is taxed in Canada, crypto capital gains tax, crypto income tax, how to pay less crypto tax in Canada and how Koinly can help you with your crypto tax.

This guide is regularly updated

One quick thing before we jump into it - the rules on crypto tax in Canada are in constant flux. At Koinly, we keep a very close eye on the CRA's crypto policies and regularly update this guide to keep you informed and tax compliant.

19 January 2022: Updated to include the newly released Schedule 3 for the 2021 financial year.
7th December 2021: New year, new guide for 2022!
1st April 2021: Koinly now connects to crypto exchange Coinsquare.
25th March 2021: Coinsquare ordered to release customer records to CRA.
10th November 2020: CRA announces 2021 filing deadline as 30 April 2021.
5th March 2019: Welcome to your Canada cryptocurrency tax guide!

Is cryptocurrency taxable in Canada?

Yes. You'll pay tax on your cryptocurrency in Canada.

Cryptocurrency isn't seen like a fiat currency in Canada. Instead, it's viewed as a commodity, which is a capital asset - like a stock or a rental property.

Koinly Crypto Tax Guide Capital Asset

Why do you need to know if it's classed as a capital asset from a tax perspective?

Because this explains how cryptocurrency is taxed in Canada.

Can the CRA track crypto?

Yes. The Canada Revenue Agency can track your crypto investments. The CRA announced they're working with crypto exchanges to share customer information. They're using this information to track Canadian crypto investors to ensure they're reporting their crypto investments accurately and paying their fair share of crypto tax.

The CRA hasn't stated precisely which crypto exchanges they're working with other than Coinsquare. This doesn't mean Coinsquare are the only crypto exchange sharing information with the CRA by any means. In fact, the vast majority of large crypto exchanges operating in Canada like Coinbase, CoinSmart, Crypto.com and more will have had the same data request from the CRA.

The CRA is also registered with FINTRAC (Financial Transactions and Reports Analysis Centre of Canada) which regulates financial institutions and investigates money laundering and tax evasion.

The best way to remain tax complaint is to report your crypto taxes accurately. Let's learn how.

How is crypto taxed in Canada?

Cryptocurrency is viewed as a commodity by the CRA. This means it's either subject to Income Tax or Capital Gains Tax.

If your crypto is taxed as income - you'll pay Income Tax on the entire proceeds of a crypto transaction. If your crypto is taxed as a capital gain, you'll only pay Capital Gains Tax on half of any profits of a crypto transaction.

how is crypto taxed in canada

So how do you know whether your crypto will be taxed as income or a capital gain? It all comes down to whether your investment is seen as business income or a capital gain. Let's break it down.

Business Income or Capital Gain

The CRA states that they decide what is business income and what is a capital gain on a case by case basis. They also state that an individual transaction may be considered business income, while other transactions by the same investor may be considered a capital gain. All this to say, it's not too clear what precisely the CRA consider business income.

They do have some guidance on this. The CRA states the following are common signs that you may have business income:

  • You conduct crypto activity for commercial reasons.
  • You promote a product or service.
  • You show that you intend to make a profit.
  • Your crypto activities are regular or repetitive.

With the above in mind - many Canadian crypto investors could be considered to be making business income as opposed to a capital gain. Their own example of business income is of a crypto investor who buys and sells crypto on a regular basis and makes a profit of $40,000 through active trading of cryptocurrency.

The more active you are in crypto trading and the more profit you make increases the likelihood of your crypto profits being considered business income as opposed to capital gains. You should speak to an experienced crypto tax accountant for bespoke advice on your investments and their subsequent taxation, but we can look at the general rules on how business income and capital gains from crypto are taxed in Canada.

Canada business income

Canada Capital Gains Tax on Cryptocurrency

Because cryptocurrency is viewed as a capital asset, when you dispose of it by selling it, swapping it, spending it or gifting it - you'll pay Capital Gains Tax. Crypto transactions which are considered a disposal in Canada include:

  • Selling crypto for CAD.
  • Swapping crypto for another crypto.
  • Spending crypto on goods or services.
  • Gifting crypto.

You won't pay Capital Gains Tax on the entire proceeds when you sell, swap, spend or gift your crypto - only the profits from it. This is also known as a capital gain.

The news keeps on getting better because you'll only pay Capital Gains Tax on half your net capital gain each financial year in Canada.

Canada crypto capital gains tax

Crypto Capital Gains Tax Rate Canada

Canada doesn’t have a specific Capital Gains Tax rate and there is no short-term Capital Gains Tax rate and long-term Capital Gains Tax rate. Instead, your crypto capital gains are taxed at the same rate as your Federal Income Tax rate and Provincial Income Tax rate. But remember - you'll only pay tax on half your capital gain. You can see the Federal Income Tax rates for 2021 to 2022 below:

Tax RateIncome
15%On your first $49,020 of taxable income
20.5%$49,0201 - $98,040
26%$98,041 - $151,978
29%$151,979 - $216,511
33%$216,512+

Meanwhile - the Provincial Income Tax rates are as follows:

Newfoundland and Labrador Provincial Tax Rate

Tax RateIncome
8.7%On the first $38,080 of taxable income
14.5%On the next $38,080
15.8%On the next $59,812
17.3%On the next $54,390
18.3%$190,363+

Prince Edward Island Provincial Tax Rate

Tax RateIncome
9.8%On the first $31,984 of taxable income
13.8%On the next $31,985
16.7%$63,969+

Nova Scotia Provincial Tax Rate

Tax RateIncome
8.79%On the first $29,590 of taxable income
14.95%On the next $29,590
16.67%On the next $33,820
17.5%On the next $57,000
21%$150,000+

New Brunswick Provincial Tax Rate

Tax RateIncome
9.68%On the first $43,835 of taxable income
14.82%On the next $43,863
16.52%On the next $54,863
17.84%On the next $19,849
20.3%$162,383+

Ontario Provincial Tax Rate

Tax RateIncome
5.05%On the first $45,142 of taxable income
9.15%On the next $45,145
11.16%On the next $59,713
12.16%On the next $70,000
13.16%$220,000+

Manitoba Provincial Tax Rate

Tax RateIncome
10.8%On the first $33,723 of taxable income
12.75%On the next $39,162
17.4%$72,885+

Saskatchewan Provincial Tax Rate

Tax RateIncome
10.5%On the first $45,677 of taxable income
12.5%On the next $84,829
14.5%$130,506+

Alberta Provincial Tax Rate

Tax RateIncome
10%On the first $131,220 of taxable income
12%On the next $26,224
13%On the next $52,488
14%On the next $104,976
15%$314,928+

British Columbia (B.C.) Provincial Tax Rate

Tax RateIncome
5.06%On the first $42,184 of taxable income
7.7%On the next $42,185
10.5%On the next $12,497
12.29%On the next $20,757
14.7%On the next $41,860
16.8%On the next $62,937
20.5%$222,420

Yukon Provincial Tax Rate

Tax RateIncome
6.4%On the first $49,020 of taxable income
9%On the next $49,020
10.9%On the next $53,938
12.8%On the next $348,022
15%$500,000+

Northwest Territories Provincial Tax Rate

Tax RateIncome
5.9%On the first $44,396 of taxable income
8.6%On the next $44,400
12.2%On the next $55,566
14.05%$144,362+

Nunavut Provincial Tax Rate

Tax RateIncome
4%On the first $46,740 of taxable income
7%On the next $46,740
9%On the next $58,498
11.5%$151,978+

Quebec Provincial Tax Rate

Tax RateIncome
15%On the first $45,105 of taxable income
20%$45,105 - $90,200
24%$90,201 - $109,755
25.75%$109,756+

Considering Federal and Provincial Income Tax Rates, this can seem quite a high tax rate to pay - but remember for capital gains, you'll only pay tax on half your gain. Unlike many other countries, short-term and long-term capital gains are taxed the same way in Canada.

How to calculate crypto gains Canada

You'll have a crypto capital gain or loss any time you sell, swap, spend or gift your crypto - so you need to know how to calculate crypto gains.

A capital gain or loss is the difference in value from when you bought or otherwise acquired your crypto to when you disposed of it by selling it, swapping it, spending it or gifting it. If you've made a profit from the difference in value - you'll have a capital gain. If you've made a loss from the difference in value - you'll have a capital loss.

Calculating your crypto gains is pretty straightforward. First, you need to figure out your cost basis. Your cost basis is how much it cost you to buy your crypto asset, plus any transaction fees. Canada use the adjusted cost basis method. This allows you to amend your cost basis to reflect how much a given capital asset actually cost you. So you can add in fees for selling your crypto, purchasing your crypto and so on. However, if you acquired crypto for free, like through an airdrop, the adjusted cost basis method will also reflect that it cost you nothing to acquire your crypto - so your entire proceeds would be profit and subject to Capital Gains Tax.

cost basis formula

Once you know your cost basis - simply subtract your cost basis from the price you sold your crypto for to identify whether you have a capital gain or loss. If you didn't sell your crypto - like if you spent it, gifted it or swapped it - then subtract your cost basis from the fair market value of the crypto in CAD on the day you disposed of it.

crypto capital gain or loss formula

Example

You live in Vancouver, B.C.

You earn $60,000 in taxable income after you deduct your personal allowance. You made a capital gain of $15,000.

You only need to pay tax on half your capital gains, leaving $7,500.

Your Federal Tax Rate is 20.5%. Your B.C. Provincial Tax Rate is 7.7%.

20.5% + 7.7% = 28.2%. This is your crypto tax rate for capital gains.

28.2% of $7,500 = $2,115. This is how much you'll pay in Capital Gains Tax on your crypto.

Crypto tax breaks

Canada has a couple of tax breaks that crypto investors will be interested in.

crypto tax breaks Canada

  1. Only half your crypto gains are taxed: You'll only pay Capital Gains Tax on half your capital gains. You can calculate this in a couple of different ways, but the easiest way is to add up all your capital gains and then halve the amount. That's how much you'll pay tax on.
  2. Donations are tax deductible: donating to a worthy cause never felt so good because not only can you help a huge range of registered charities, but you can reduce your crypto tax bill in the process. Win-win!
  3. Personal tax allowance: the first $13,808 you make in income is tax free in Canada.

Crypto capital losses

You won't pay any Capital Gains Tax on any capital losses from crypto. But don't just write these off as a bad time - utilize them to reduce your tax bill.

You can offset your capital losses against your capital gains for the financial year to reduce your overall tax bill.

The 50% rule for capital gains equally applies to your capital losses. This means you can only offset half your net capital loss in a given tax year. If you've done this and you still have more losses, you can carry this forward to future financial years to offset against future gains. Similarly, if you have no capital gains in a year, you can carry forward half your capital losses to offset against future gains.

crypto capital gains and losses in Canada

Tax on lost or stolen crypto

The CRA has not released specific guidance stating whether you can claim lost or stolen crypto as a capital loss. However, they do allow taxpayers to deduct capital losses due to theft of other capital assets. So there is a good chance the same rules may apply to cryptocurrency.

Because Canada use the adjusted cost basis method - it is highly likely you would only be able to claim your original investment as a loss, not the fair market value of the asset at the time it was lost or stolen. This is easier to understand with an example.

Let's say you were very clever and bought Bitcoin back in 2017 for $900. You then forgot about it entirely for a couple of years and now you've realized in 2021 that your 1 BTC is worth $70,000! But you've also lost your private keys and have no means of finding or restoring them. You may be able to claim this as a capital loss (with enough proof) with the CRA - but you'll only be able to claim $900 as your capital loss, not $70,000.

Canada lost or stolen crypto tax rules

Crypto Income Tax

Now we've covered capital gains and Capital Gains Tax, let's look at crypto Income Tax.

There are many crypto transactions that could be considered income by the CRA - including disposing of your crypto if you're trading regularly and at scale. One of the simplest ways to think about it is anytime you're seen to be 'earning' crypto - this could be seen as business income and subject to Income Tax instead. Examples of crypto transactions that could be considered income include:

  • Getting paid in crypto.
  • Mining crypto.
  • Staking rewards.
  • Referral bonuses.

Remember if you're selling and swapping crypto at scale - like a day trader - then your profits could be considered business income, not capital gains.

As well as the above, DeFi has brought many new ways for crypto investors to make money. The CRA is pretty behind the curve when it comes to the tax treatment of crypto in Canada, but we can safely assume that based on their business income guidance, most DeFi transactions would be considered business income as you're conducting transactions for a commercial reason. Examples of DeFi transactions that would be viewed as income and subject to Income Tax include:

  • Earning interest through yield farming on lending protocol like AAVE, Compound.
  • Earning new liquidity pool tokens, governance or reward tokens on protocols like Uniswap.
  • Lending your crypto to platforms like NEXO to earn interest.
  • Earn crypto dividends on platforms like CoinRabbit.

There are also many play-to-earn platforms and other similar engage-to-earn platforms that have sprung up in the crypto space in recent years. The rewards you receive from these could also be considered business income and subject to Income Tax. Examples include:

  • Referral rewards like Binance Referral.
  • Learn to earn campaigns, like Coinbase Learning Center or CoinMarketCap Learning Center.
  • Watch to earn platforms like Odysee.
  • Browse to earn platforms like Permission.io browser extension, Brave.
  • Play to earn games like Axie Infinity.
  • Shop to earn through browser extensions like Lolli.
  • Share public address to earn on platforms like Moon Faucet.

As we said above, the CRA hasn't released specific guidance on most crypto transactions beyond the basic disposals just yet. However, as their guidance for what is considered business income includes conducting activities for commercial reasons - it is quite likely all DeFi transactions would be considered business income and subject to Income Tax. Of course, it is advisable to speak to an experienced tax advisor for your investments.

Crypto Income Tax Canada

How to calculate crypto Income Tax

Unlike crypto capital gains where only half your profits are subject to Capital Gains Tax, the same isn't true for crypto income. When it comes to Income Tax, you'll take the fair market value of the crypto in CAD on the day you received it and apply your Federal and Provincial Income Tax rates to the entire amount to calculate how much Income Tax you'll pay.

You can find your Federal and Provincial Income Tax rates in the tables above. Let's look at an example.

Example

You live in Vancouver, British Columbia.

You earn $60,000 in taxable income from your job - you’ve already deducted your personal allowance. You also earn $10,000 in crypto income. 

This puts you in the 20.5% Federal Tax Rate band for your crypto earnings.

Your Provincial Tax Rate band is 7.7%. 

20.5% + 7.7% = 28.2%. This is your crypto tax rate.

28.2% of $10,000 is $2820. This is what you’ll pay in Income Tax on your crypto.

Is any crypto tax free in Canada?

Sure! There are some specific crypto transactions that are tax free in Canada.

tax free Canada

You won't pay tax on crypto when you're:

  • Buying crypto with fiat currency.
  • HODLing crypto.
  • Moving crypto between your own wallets.
  • Donating crypto to charity.
  • Being gifted crypto.

Do you pay tax when you buy crypto in Canada?

No, but also sometimes yes. It all depends on whether you're buying your crypto with CAD or crypto. Let's break it down.

buying crypto tax Canada

Buying crypto with CAD

You're not taxed when you buy crypto with fiat currency - like Canadian Dollars.

This said, even though you don't pay tax, it's still really important you keep good records of your crypto transactions so you can keep a detailed account of your cost basis. This lets you calculate accurate crypto gains and losses when you later dispose of your crypto.

buying crypto is tax free

TAX FREE

Buy and HODL crypto

Waiting for the moon? Great news, you'll pay no tax to do so. Even if the value of your crypto increases - you'll pay no tax until you realize that gain by selling, spending, swapping or gifting your crypto.

TAX FREE

Buying crypto with crypto

Buying crypto with another crypto is subject to Capital Gains Tax. The CRA view this as a disposal - you're getting rid of one asset. It doesn't matter that you're using it to buy another - you've still disposed of your asset.

Let's say you bought BTC with ETH. The CRA aren't interest in you buying ETH, they're interested in you selling Bitcoin. You need to calculate whether you have a capital gain or loss from your disposal of BTC. To do this, you'd use the cost base of your BTC from the day you bought/acquired it and subtract it from the fair market value of BTC in CAD on the day you swapped it for ETH.

buying crypto with crypto tax

CAPITAL GAINS TAX

Buying crypto with stablecoins

Stablecoins are treated like any other cryptocurrency by the CRA - so if you're using stablecoins to buy other cryptocurrencies, any capital gain you make is subject to Capital Gains Tax.

Of course, because stablecoins are often pegged to a fiat currency, the price will remain relatively stable. So you're unlikely to have an actual capital gain or loss from disposing of stablecoins as there will be no difference in value from when you bought the coins to when you disposed of them.

Despite this, you'll still need to keep records of these disposals for the CRA.

buying crypto with stablecoins tax Canada

CAPITAL GAINS TAX

Do you pay tax when you sell cryptocurrency in Canada?

Yes - you'll pay tax whenever you sell Bitcoin or any other crypto in Canada. The amount you pay will vary based on your regular income.

selling crypto tax in Canada

Selling crypto for CAD

Selling crypto for fiat currency like Canadian Dollars is a disposal of asset from a tax perspective. This makes it subject to Capital Gains Tax.

You'll only pay tax on half your capital gain or profit. The tax rate you'll pay depends on your regular income.

Example

Devin buys 1 ETH in June 2021. The price of ETH the day he buys it is $2,500 and he pays a $25 fee. He can adjust his cost basis to include the fee - giving him a cost basis of $2,525.

He sells his 1 ETH in November 2021 for $5,000. He needs to figure out his capital gain by subtracting his cost basis from his sale price.

$5,000 - $2,525 = $2475. This is his capital gain, he needs to pay Capital Gains Tax on this amount.

Devin earns $80,000 a year from his job. This puts him in the 20.5% Federal Income Tax bracket. He lives in Ontario and his earnings put him in the 9.15% Provincial Income Tax

20.5% + 9.15% = 29.65%

Remember, Devin only pays tax on half his capital gain of $2475, so he can halve the amount to $1237.5

29.65% of $1237 = $366.9. This is how much he'll pay in Capital Gains Tax.

CAPITAL GAINS TAX

Selling crypto for crypto

It doesn't matter what you're selling your crypto for - either way the CRA see it as a disposal from a tax perspective. You're still getting rid of one asset, even if you're replacing it with another. So selling crypto for crypto is subject to Capital Gains Tax.

To calculate your capital gain or loss, subtract the cost basis of the asset you disposed of from the fair market value of the asset on the day you traded it in CAD.

CAPITAL GAINS TAX

Do you pay tax when transferring crypto?

No, you won't pay tax on your crypto when your transferring it between your own wallets or exchanges you use.

However, transfer fees and transferring crypto in and out of liquidity pools is a little more confusing from a tax perspective

Moving crypto between wallets

Transferring your crypto from one wallet to another isn't seen as a disposal by the CRA. You still own the asset - so it's tax free.

transfer tax on crypto Canada

You still need to keep records of these transactions in case the CRA ever wishes to audit your crypto assets.

TAX FREE

Transfer fees

Most exchanges will charge you a transfer fee to move your crypto. If you pay this transfer fee in CAD or another fiat currency - this is tax free.

But most of the time, you'll pay these transfer fees in crypto. Spending crypto is a disposal, so it's a taxable event and subject to Capital Gains Tax.

This means if the price of your asset has increased since you bought it, when you then spend crypto to transfer it - you'll have a capital gain.

The CRA doesn't have guidance on whether transfer fees are an allowable cost - so we don't know if you can add them to your cost basis under the adjusted cost basis rules. While transaction fees are definitely allowed to be added to your cost basis, transfer fees might be seen as a cost in maintaining your asset. In other words - you didn't have to pay the fee to buy or dispose of the asset, you chose to move the asset around.

Example

You bought 1 ETH. The price of 1 ETH when you bought it is $4,385.

You decide you want to move your ETH from your Binance wallet to your MetaMask wallet. You're charged flat fee of 0.005 ETH to do so.

You're paying in ETH - so you're disposing of your cryptocurrency. So you need to calculate your cost basis and the fair market value of your crypto at the point of disposal. To keep it simple, let's say the price of ETH hasn't changed since you bought it.

0.005 ETH = $21.90. This is your disposal - you need to report this to the IRS as a disposal, regardless of the fact you have no capital gain or loss. Of course, doing this for every transaction can be time-consuming, but Koinly can help you do this with our "treat transfer fees as disposals" setting.

POTENTIAL CAPITAL GAINS TAX

Adding and removing liquidity

If you're investing in DeFi protocols - the vast majority of these protocols use liquidity pools. On the surface, we can liken this to transferring your asset to another wallet or exchange. You're not disposing of the asset and you can take the original asset back at any point.

In some instances, this will be true. But many DeFi protocols now give investors a token that represents their share in the liquidity pool - so you're swapping your crypto for another asset. Crypto-to-crypto swaps are a taxable event as you're disposing of one asset for another - even if you then get that asset back later, you're still swapping a token for it. This could be subject to Capital Gains Tax.

It's important to note the CRA hasn't given any guidance on this yet - so you should speak to an experienced crypto accountant who can advise you on these transactions.

liquidity transfers tax Canada

POTENTIAL CAPITAL GAINS TAX

How are airdrops and forks taxed in Canada?

The CRA has no specific guidance on how airdrops and forks are taxed in Canada - but we can infer their tax treatment from their guidance on what is considered business income. Forks and airdrops are unlikely to be taxed as income on receipt, but you will pay Capital Gains Tax when you later sell coins or tokens you received from an airdrop or hard fork.

Receiving an airdrop

The Canada Revenue Agency is unlikely to view airdrops as a type of income, as long as you're seen to be trading as an individual and not as a business.

However, you will pay tax when you later spend, swap, gift or sell coins or tokens received from an airdrop.

TAX FREE

Selling or swapping coins from an airdrop

Crypto you received from an airdrop will be treated the same as any other crypto when you later spend, swap. gift or sell it. So you'll pay Capital Gains Tax when you dispose of this crypto.

It’s important to note that because CRA uses the adjusted cost basis method, you'll pay Capital Gains Tax on the entire proceeds as all of your proceeds will be seen as profit. Your cost basis is zero, so your entire proceeds are considered a capital gain.

Canada airdrops tax

Example

You receive 200 1INCH tokens from an airdrop. The FMV of the token that day is $3. Your tokens are not subject to Income Tax as you’re not trading as a business.

You paid nothing for the asset, so your cost basis is $0. 

You sell your 1INCH tokens two months later for $4, so you made a total of $800. To calculate your capital gains, subtract your cost basis from the sale price. 

$800 - $0 = $800. You report a capital gain of $800.

CAPITAL GAINS TAX

Forks

The CRA hasn’t issued specific guidance on how hard forks are taxed, but they're very clear that the way your crypto is taxed is dependent on how they view you as a taxpayer.

So for individual investors, it's likely you wouldn't pay any tax when you receive coins from a hard fork. But you will pay Capital Gains Tax on your crypto assets at the point you dispose of them by selling, swapping, spending or gifting them.

Like above, because Canada uses the adjusted cost basis method, the cost basis for any new coins received as a result of a fork would be zero as you didn’t pay anything for them. This means when you later dispose of this asset, you’d pay Capital Gains Tax on the total value of your coins as it’s all considered profit. 

hard forks tax Canada

CAPITAL GAINS TAX

Crypto gifts and donations tax

Gifting crypto in Canada is seen as a disposal of asset and it's subject to Capital Gains Tax. But donating crypto to a registered charity is a tax free event.

Gifting crypto

When you give a crypto as a gift in Canada, you'll pay Capital Gains Tax on any profit. This is seen as a disposal of asset by the CRA.

The recipient of the gift uses the FMV of the asset the day they received it as their cost basis should they later wish to sell it. Remember, you'll only pay Capital Gains Tax on half of any capital gain.

Canada crypto gift tax

CAPITAL GAINS TAX

Donating crypto to charity

Donating crypto is tax free in Canada - so find a worthy cause and spread the love. Make sure you donate to a qualifying donee - so a registered charity. Other worthy causes like crowd funders and so on may not qualify.

The news keeps on getting better because you can also use donations to reduce your tax bill if you qualify for the Charitable Donations Tax Credit.

TAX FREE

Crypto mining tax Canada

The CRA guidance on crypto mining tax all revolves around the scale and intentions of your crypto mining activities. If you're seen to be acting as an individual, you'll only pay Capital Gains Tax when you dispose of mined crypto. If your mining is more akin to business income, you'll pay Income Tax instead.

crypto mining tax Canada

Mining as a hobby

If the CRA view your crypto mining activities as a hobby - you won't pay Income Tax when you receive mined coins. You will however pay Capital Gains Tax when you later dispose of mined coins by selling, swapping, spending or gifting them.

Because the cost basis of mined coins is zero - all proceeds from a disposal are considered a capital gain.

CAPITAL GAINS TAX

Mining as a business

If you're in the business of mining, the cryptocurrency you hold is considered as inventory and you need to use one of the two methods to value it:

1. Valuing each item at either its acquisition cost or its fair market value at the end of the year, whichever is lower.

2. Valuing the entire inventory at its fair market value at the end of the year (the price you would have to pay to replace an item or the amount you would receive if you sold an item)

You can use either the cost or the fair market value to value your inventory, whichever is lower. In fact, you can use the lower value for each specific cryptocurrency you have which makes tax planning even better. Here cost refers to "cost at which the taxpayer acquired the property" along with all reasonable costs incurred to buy the property. You also need to be consistent and use the same method to value your property, year-on-year.

It's also important to remember, of course, that the income from selling mined cryptocurrency will become part of your business income and be taxed accordingly. Costs associated with mining (like electricity, equipment etc.) would have to be calculated on a per coin basis and then deducted against the sales proceeds.

INCOME TAX

Crypto margin trading, derivatives and other CFDs

The tax treatment of crypto margin trading, derivatives products like Bitcoin futures and other CFDs all depends on whether you're seen to be acting as a day trader or an individual investor. So it will all depend on the scale at which you're trading - but let's look at both scenarios and the taxation.

Trading as an individual investor

If you're seen to be trading as an private investor - you'll pay Capital Gains Tax on profits from margin trades, derivatives and other CFDs. So when you open a position, you won't pay tax. It's only when you close your position that you'll realise a capital gain or loss and pay Capital Gains Tax on any profits.

In the instance of liquidation - when your collateral is sold - this is a disposal from a tax perspective.

CAPITAL GAINS TAX

Trading as a day trader

Meanwhile, if you're seen to be trading at the same scale and frequency as a day trader - you'll pay Income Tax on 100% of the profits from your trades. Like above, you won't pay tax when you open a position in a margin trade, derivative or another CFD - you'll pay tax at the point you close the sale.

Unlike with capital gains, where only half your gain is taxed - you'll pay tax on 100% of your profits at your current tax rate.

INCOME TAX

DeFi taxes Canada

The CRA is behind the curve when it comes to crypto tax in general so we'll preface this by saying there is no clear guidance from the CRA about DeFi tax in Canada.

This doesn't mean you won't pay tax on DeFi investments - it just means you need to look at the current crypto tax rules in Canada and infer the likely tax treatment of DeFi investments. As we know already from this guide, the tax treatment of crypto in Canada all boils down to whether it's seen as business income or a capital gain. You'll have business income anytime you're intending to make a profit or if you have regular and repetitive activities. That's going to be the case for the majority of DeFi investors which means it's likely a lot of your DeFi investments are going to be taxed as income, not as a capital gain.

DeFi tax Canada

Anytime you're 'earning' crypto - like business income - this is likely to be subject to Income Tax. Meanwhile, anytime you're disposing of crypto - this is likely to be subject to Capital Gains Tax. It is advisable to speak to an experienced tax accountant about your specific DeFi investments. This said, from the current rules, we can infer DeFi would likely be taxed as the following:

  • Earning interest from DeFi protocols: Income Tax.
  • Borrowing from DeFi protocols: No tax.
  • Paying interest in DeFi protocols: No tax unless you're paying in crypto, in which case Capital Gains Tax.
  • Selling or swapping NFTs: Capital Gains Tax. If you're doing this as an artist, this would likely be Income Tax instead.
  • Buying NFTs: No tax, unless you're buying with crypto - in which case Capital Gains Tax.
  • Staking on DeFi protocols: Income Tax.
  • Yield farming DeFi protocols: Income Tax.
  • Earning liquidity tokens from DeFi protocols: Income Tax.
  • Adding liquidity to liquidity pools: No tax or Capital Gains Tax if you receive a token in exchange for your liquidity.
  • Removing liquidity from liquidity pools: No tax or Capital Gains Tax if you exchange a token to remove your liquidity.
  • Earning through play/engage to earn DeFi protocols: Income Tax.
  • Profits from DeFi margin trading and options protocols: Capital Gains Tax provided you're not a day trader.

DeFi trading as an individual

As we already said, the tax treatment of your DeFi investments is all going to come down to whether the CRA view you as an individual investor or see your crypto investments as more similar to business income. They decide this on a case-by-case basis - but if you're seen to be trading as an individual, you'll pay Capital Gains Tax on any profits, not Income Tax.

CAPITAL GAINS TAX

DeFi business income

If your DeFi transactions are regular, repetitive, intending to make a profit or of a commercial nature (as many people's will be!), you'll pay Income Tax on the entirety of your profits from DeFi investments instead of Capital Gains Tax on half. The CRA decide what is business income and what is a capital gain on a case by case basis so you should speak to a tax advisor for further advice on how your investments may be seen.

INCOME TAX

Do you pay tax when spending crypto in Canada?

Yes - spending crypto on goods or services is a disposal of an asset and it's subject to Capital Gains Tax.

Spending crypto on goods or services

Whatever you're buying - if you're spending your crypto on goods and services, the CRA see this as you disposing of a capital asset. This makes it subject to Capital Gains Tax.

You'll need to calculate any capital gain or loss by subtracting your cost basis from the fair market value of your crypto on the day you spent it.

CAPITAL GAINS TAX

What crypto records will the CRA want?

The CRA is fairly clear on the fact that you have to keep extensive records of your crypto transactions.

The problem with exchanges is that there is no standard for the records they keep and how long they keep them. This means that the onus is on the taxpayer to periodically export information from these exchanges to make sure they are maintaining meticulous records. You need to keep all the required records along with supporting documents for at least six years from the end of the last tax year that the records relate to.

Here are the different kinds of records you are expected to maintain:

  • Transaction date
  • Receipts of purchase and transfer of crypto
  • The fair market value of the cryptocurrency in CAD at the time of the transaction
  • A description of the transaction and the cryptocurrency address of the other party
  • The accounting and legal costs
  • The exchange records
  • Digital wallet records and cryptocurrency addresses
  • Software costs related to managing your taxes

crypto record keeping for CRA

You can use Koinly for your record keeping without paying anything! Just sync your exchange accounts via read-only API keys and your blockchain wallets using your public keys or addresses. Koinly will then sync your transaction history automatically from time to time - so you'll always have great records of your crypto transactions.

Canada cost basis method

As we said above Canada use the adjusted cost basis method when you're calculating your crypto capital gains and losses. This means you need to track the costs involved in acquiring your crypto assets carefully.

This is simple to do at a small scale - so if you're only trading every now and then and you don't have a lot of assets. But if you're trading multiple assets of the same kind over several years - this can get a lot trickier to keep track of. If you have multiple assets of the same kind that you've acquired for different prices over a period of time - for example 20 ETH that you bought over the course of two years for different prices - then the CRA say you can use the average cost of each property.

In this case, you'd add up your total cost basis for a group of assets and divide it by the amount of assets in that pool to give you your cost basis. So in the example above, you'd add up the cost basis for each ETH you purchased and divide it by 20 to get your cost basis to calculate your capital gain or loss when you dispose of that ETH.

The adjusted cost basis method is easily manipulated though. In theory, investors could simply sell multiple assets at a loss in a given pool and immediately buy them back to create artificial losses to reduce their tax bill. This is what's known as a superficial loss or a wash sale and the CRA has a specific rule to prevent it.

The Superficial Loss Rule

The Superficial Loss Rule kicks in when both of these conditions are met:

  • The taxpayer (or someone acting on their behalf) acquires cryptocurrency that is identical to the one that they dispose of, either 30 days before or after the disposal, and
  • At the end of that period, the taxpayer or a person affiliated with the taxpayer owns or had a right to acquire the identical property.

What all this means is if you sell and buy assets of a similar kind within a 30 day period - you can't offset these capital losses against your capital gains.

When do you need to report your crypto taxes to the CRA?

The Canadian financial year is the same as the calendar year so it runs from the 1st of January to the 31st of December every year. This means the current financial year is 1st of January 2021 until the 31st of December 2021. You need to report your crypto income, capital gains and losses to the CRA by the 30th of April 2022. As this falls on a weekend, this year the tax deadline is the 2nd of May 2022. If you're self-employed you have until the 15th of June 2022. You'll report all your crypto taxes in your annual Income Tax Return.

Canada tax deadline

How to calculate your cryptocurrency taxes Canada

Calculating your crypto taxes so you can accurately report them to the CRA can take hours - if not days if you trade at volume! You can do it all manually, or you can use a crypto tax app like Koinly to save you hours.

To calculate your crypto taxes manually, follow these steps:

  1. Identify all your taxable crypto transactions for the financial year (1st Jan to 31st Dec)
  2. Identify which transactions are subject to Income Tax and which transactions are subject to Capital Gains Tax.
  3. Identify the cost basis for each transaction using the adjusted cost basis method.
  4. Calculate your subsequent capital gains and losses, income and expenses.
  5. Halve your net capital gain. Halve your net capital loss and subtract your new net capital loss from your net capital gain.

If you have a higher net capital loss than your net capital gain, remember you can carry capital losses forward to future tax years to offset against future gains.

How to report taxes on crypto Canada

You file your crypto taxes as part of your annual Income Tax Return.

Report crypto capital gains and losses on Schedule 3 Form.

Report crypto income on Income Tax Return T1. 

You can file both of these online using CRA's My Account or through tax apps like TurboTax.

How to use a crypto tax app like Koinly

Don't get stuck in the busywork. Don't get it wrong. Don't rely on your accountant to know where to look. Use Koinly to generate your HMRC crypto tax reports. Here's how easy it is:

1. Sign up for a FREE Koinly account.

It only takes a minute!

2. Select your base country and currency.

In this instance, Canada and Canadian Dollars.

3. Select your accounting method.

Koinly supports the adjusted cost basis method with superficial loss rule for Canadian users. This is the only cost basis method the CRA allow, so you shouldn't change it.

Canada cost basis on Koinly

4. Connect Koinly to your wallets, exchanges or blockchains.

Koinly integrates with more than 300 crypto exchanges, wallets and blockchains. (See all) If you can't find yours, let us know - we're always adding more.

5. Let Koinly crunch the numbers. Make a coffee.

Koinly will calculate your cost basis for each crypto asset like ETH, ADA and Bitcoin and taxes them accordingly. Koinly will calculate each capital gain or loss from your disposals, as well as your crypto income and expenses.

6. Ta-da! Your data is collected and your full tax report is generated!

Head to the tax reports page in Koinly and check out your tax summary. This includes your net capital gains, other gains, income, costs, expenses and any gifts, donations or lost crypto.

Canada tax summary

7. To download your crypto tax report, upgrade to a paid plan from $49 per year.

Download what you need, when you need it. For Canadian investors, you can download the pre-filled Schedule 3 to submit to the CRA or download a TurboTax online file to upload to your TurboTax account.

7. Send your report to your accountant, or complete your Income Tax Return yourself.

Use the generated file to complete your Income Tax Return or send it over to your accountant. Done!

How to file crypto taxes on TurboTax Canada

Filing with TurboTax Canada? No worries, here's how:

How to file crypto taxes with CRA paper forms

Still filing by post? Koinly can still help you file your crypto taxes. Just follow these steps.

  1. Calculate your crypto tax. You need to know your capital gains, losses, income and expenses.
  2. Complete Schedule 3 with your capital gains and losses from crypto
  3. Fill out your Income Tax Return and include any crypto income.
  4. Post your Income Tax Return to the CRA. You should post tax returns at least 12 weeks before the deadline to ensure you're not late on filing your taxes.

How to pay tax on cryptocurrency in Canada

The deadline to pay your taxes in Canada is the same day as the deadline to file - so the 30th of April 2022. This is why we recommend filing well ahead of the deadline to ensure you're not stuck in the lurch with a large tax bill. Once you've filed the CRA will let you know how much tax you owe on your crypto and give you options for payment.

How to avoid tax on cryptocurrency Canada

Want to know how to cash out crypto without paying taxes in Canada? You can't outright avoid all your taxes - but there are a few ways to reduce your tax bill down by a sizeable amount! You can see our complete guide to avoiding crypto tax, but in short:

Invest in an RSP

Investing in a Retirement Savings Plan can help you prepare for the future an reduce your tax bill. You can deduct contributions to RSAs from your tax bill. You can also contribute to a spousal RRSP and deduct this too!

Offset your losses

You can offset half your capital losses against your capital gains in Canada. If you still have losses left over, you can carry them forward to future tax years and even apply them retrospectively to previous tax years to get a tax refund.

Track and harvest your unrealised losses

Your losses are only realised once you dispose of your asset by selling it, swapping it, spending it or gifting it. But you'll have an unrealised loss when the price of your asset has depreciated since you bought it. If you're facing a large tax bill, you can sell these assets at a loss to reduce your tax bill. You can even buy them back later - but make sure to leave this more than 30 days to avoid the superficial loss clause.

Donate crypto

Donations help you earn Provincial and Federal Tax Credit that you can use to offset your tax bill. So find a worthy cause and give generously!

Remember, you'll need to make any moves to optimize your tax position within the financial year (so before the 31st of December 2021!)

Which crypto exchanges are banned in Canada?

There are many crypto exchanges that cannot operate in Canada. To make matters more confusing - some have only been banned in certain providences, for example, you can't use Binance in Ontario. Even on some exchanges that you can use in Canada - like Coinberry and Wealthsimple - the Ontario Securities Commission has banned the trading of Tether (USDT) on the platforms. Similarly, while you can use Kraken in Canada - some features like crypto futures trading - are limited for Canadian users.

Your best bet for a safe crypto exchange is to use a Canadian crypto exchange that is registered in Canada and approved to operate there. Some of the most popular include:

  • Coinsmart
  • Bitbuy
  • Coinberry
  • Coinsquare

Look out for CRA nudge letters

The Canada Revenue Agency has confirmed they're contacting crypto investors to notify them of pending audits. Those who are selected for a crypto audit will receive a 13 page form packed full of questions about their crypto dealings.

The CRA are identifying crypto investors based on data shared from cryptocurrency exchanges. Beyond Coinsquare, the CRA haven't confirmed any other crypto exchanges they've submitted data requested to.

The best way to avoid an unwelcome audit from the CRA is to report and pay your crypto taxes accurately. Make it easy by using Koinly.

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