Crypto Tax Canada: Ultimate Guide 2023
Not sure how crypto is taxed in Canada or want to know how much tax you'll pay on crypto? The Canada Revenue Agency has released guidance on cryptocurrency taxes in Canada - but they're not always clear. Our Canada Crypto Tax Guide covers everything you need to know including crypto capital gains, crypto income, how to calculate your crypto taxes, how to report your crypto to the CRA and even how to help you reduce your tax bill ahead of the April 30 tax deadline - let's go!
Is crypto taxable in Canada?
Yes. The Canada Revenue Agency (CRA) is clear that crypto is subject to Income Tax. You'll pay Income Tax on half of any crypto gains from dispositions of crypto, as well as Income Tax on any additional income from crypto - like staking or being paid in crypto.
How much tax do you pay on crypto in Canada?
The amount of tax you'll pay on crypto depends on the kind of transaction (income or capital gain), and how much you earn. For transactions viewed as income, you'll pay Income Tax at your usual Federal and Provincial tax rate. For transactions viewed as capital gains, you'll pay Income Tax at your normal Federal and Provincial tax rate on half of any gain.
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.
13 September 2022: Updated ahead of the EOFY - optimize your tax position now!
21 February 2022: Tax-filing season is open. Deadline is 2 May (as 30 April falls on weekend).
14 February 2022: Updated with additional guidance for NFTs, DAOs and Income Tax rates for 2022.
19 January 2022: Updated to include the newly released Schedule 3 for the 2021 financial year.
7 December 2021: New year, new guide for 2022!
1 April 2021: Koinly now connects to crypto exchange Coinsquare.
25 March 2021: Coinsquare ordered to release customer records to CRA.
10 November 2020: CRA announces 2021 filing deadline as 30 April 2021.
5 March 2019: Welcome to your Canada cryptocurrency tax guide!
Is any crypto tax free in Canada?
Let's start with the good news... there are some specific crypto transactions that are tax free in Canada.
You won't pay tax on crypto when you're:
- Buying crypto with fiat currency.
- HODLing crypto.
- Moving crypto between your own wallets.
- Being gifted crypto.
- Creating a DAO (Decentralized autonomous organization).
Can the CRA track crypto?
Yes. The Canada Revenue Agency can track your crypto investments. So if you're thinking you just won't declare your crypto income or gains... think again. In fact, we have a whole article on the penalties you'll face for crypto tax evasion in Canada.
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.
As of January 1 2022, all money services businesses in Canada have to notify the CRA of transactions greater than $10,000. So if you send $10,000 to a crypto exchange, it will be reported to 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. Reported trades are not necessarily restricted to those above $10,000. If a crypto exchange is registered with FINTRAC in Canada, they are required to obtain a copy of your government-issued ID and proof of address. Your ID is therefore linked to your account and wallet addresses on the exchange.
The CRA hasn't stated precisely which crypto exchanges they're working with other than Coinsquare. This doesn't mean Coinsquare is 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 others are likely to have had the same data request from the CRA.
In other words, the best way to remain tax compliant is to calculate report your crypto taxes accurately. Let's learn how.
The CRA & cryptocurrency tax
Cryptocurrency isn't seen like a fiat currency in Canada. Instead, it's viewed as a commodity, which is a capital property - like a stock or a rental property.
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.
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.
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 on whether you have business income or capital gains 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.
Crypto Capital Gains Canada
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 owe Capital Gains Tax on any profit you make. Crypto transactions which are considered a disposition 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.
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 or 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 the 2021 and 2022 tax years below:
Want to see the Provincial Income Tax Rates for Canada? See our Canada Crypto Tax Rates Guide
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 tax 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 may carry this figure 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.
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.
But, they do allow taxpayers to deduct capital losses due to theft of other capital property. As crypto is considered to be capital property under Canadian law - you may be able to make a claim for a capital loss for stolen crypto. Find out more in our lost & stolen crypto Canada guide.
How to calculate gains on crypto 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 uses 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 related to selling your crypto and purchasing crypto. This could include exchange fees and gas fees for making the transaction on a network.
However, if you acquired crypto for free - for example, through an airdrop or a gift - 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.
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 - for example, 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.
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.
Canada cost basis method
Canada uses the adjusted cost basis method when calculating crypto capital gains and losses. This means you need to track the costs involved in acquiring your crypto assets carefully. If you have multiple identical assets, the CRA says to use the average cost basis method. We have a whole guide on calculating crypto taxes with the Canadian cost basis method (with the superficial loss rule).
The Superficial Loss Rule
To prevent wash sales, the CRA has the superficial loss rule. It kicks in when both 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 disposition, 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.
Good to know
Please note if you're a newcomer to Canada - there's a specific rule about how to value your property (including crypto) that you acquired before arriving in Canada.
If you owned certain properties - like shares or other capital assets excluding taxable Canadian properties - at the time you immigrated to Canada, the CRA considers you to have sold the properties and to have immediately reacquired them at a cost equal to the fair market value on the date you became a Canadian resident. This is what's known as a deemed disposition.
In other words, you'll need to adjust your cost basis for all your crypto to the fair market value in CAD on the day you became a resident of Canada. You'll need to keep these records to ensure you can calculate your gain or loss correctly if you later dispose of your crypto.
Crypto tax breaks
Canada has a few tax breaks that crypto investors will be interested in.
- 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.
- Personal tax allowance: the first $14,398 you make in income is tax free in Canada for the 2022 financial year.
- Spousal Tax Credit: If you don't use up your personal tax allowance (Basic Personal Amount) mentioned above, then you can transfer it to your partner - provided you're married or in a common law partnership. For example, if you earn $60,000 a year and your partner earns $10,000 a year, you’d be able to claim the difference between your partner’s income and the BPA - in this example, $4,398. Learn more about filing Canadian crypto taxes as a married couple in our blog.
Please note when filing your taxes via CRA (or through TurboTax etc.) you shouldn't try and factor in these breaks yourself. The CRA want to see your totals across all asset classes and then they will work out any applicable discounts on your behalf.
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.
- Selling an NFT you've created.
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, Maker or Compound.
- Earning new liquidity pool tokens, governance tokens 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 or 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 basic dispositions 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.
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.
With the foundations out the way... let's take a look at a variety of transactions and the kind of tax that would apply.
Do you pay tax when you buy crypto in Canada?
No, provided you're buying with fiat currency. Let's break it down.
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.
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.
Buying crypto with crypto
Buying crypto with another crypto is subject to Capital Gains Tax. The CRA view this as a disposition - 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 interested 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 disposition 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.
You do however need to keep track of how much you purchased your ETH for so you know your cost basis if you later sell, trade, spend or gift your ETH.
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 dispositions for the CRA.
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 for CAD
Selling crypto for fiat currency like Canadian Dollars is a disposition of an 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.
Selling crypto for crypto
It doesn't matter what you're selling your crypto for - either way the CRA view it as a disposition 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.
Do you pay tax when transferring crypto?
No, you won't pay tax on your crypto when you're 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 disposition by the CRA. You still own the asset - so it's tax free.
You still need to keep records of these transactions in case the CRA ever wishes to audit your crypto assets.
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 disposition, 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. But it's unlikely that the transfer fees are tax deductible.
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 a 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 disposition. 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 disposition - you need to report this to the CRA as a disposition, 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.
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.
If the CRA do think of moving liquidity as a disposition where LP tokens are involved - then it's likely that any gas fees you pay as a result would be deductible as they can be thought of as transaction fees related to a buy or sell.
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.
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.
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.
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.
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 the tokens sold because the entire sales proceeds would be considered profit.
Crypto gifts and donations tax
Gifting crypto in Canada is seen as a disposition of an asset and it's subject to Capital Gains Tax. Meanwhile, donations of crypto in Canada has complicated tax implications.
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 disposition of an 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.
Example
You bought 10 Moonriver tokens at a FMV of $100 per token. You then gift all of these to your friend when the fair market value (FMV) of those tokens is $500.
As your gift is viewed as a disposition, Capital Gains Tax applies. The sale proceeds are $5,000 ($500 x 10) and the base cost is $1,000 ($100 x 10).
$5000 - $1,000 = $4,000. You report a capital gain of $4,000.
The gift recipient will be liable for capital gains tax when they dispose of the assets. Their base cost will be the FMV at the date they received the tokens - $500 per token.
Donating crypto to charity
Want to spread the love? Donating crypto to a registered charity is a great way to do it - but it has complicated tax implications for both the recipient and the donator.
Because crypto is considered a commodity by the CRA and not cash - donation of crypto don't follow the same rules as cash donations. So when you donate crypto, the CRA views this as a disposition of an asset and it has tax consequences. If your crypto has increased in value from acquisition to the time you donate, you'll be liable for Capital Gains Tax on that donation.
Donating crypto to a registered charity is considered a Gift in Kind donation. This means it's subject to the deemed fair market value rule. So upon donation, you'll need to tell the charity when you acquired your crypto asset. If you received and donated it within three years of the acquisition date, the charity may only issue a tax receipt for the obtained value.
EXAMPLE
You buy 1 ETH in December 2020 for $600. You then donate this ETH to a registered charity in December 2021 when the fair market value of ETH is $4,000.
According to the CRA, the charity you donate to can only issue a $600 receipt for your donation and your donation is a disposition. You'll need to pay Capital Gains Tax on the difference in value, so $3,600.
If the charity issued a receipt for the for the current value of $4,000, this could be invalidated during an audit.
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.
Mining as a hobby
If the CRA views 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 disposition are considered a capital gain.
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.
Crypto staking Canada
Some cryptocurrencies don't use proof-of-work (mining) and instead use proof-of-stake (PoS). Examples of this include Ethereum, Polkadot, Solana, Avalanche and Cardano. In a PoS consensus mechanism, you stake your crypto to earn a reward.
Staking in this context serves a similar function to mining - a network participant gets selected to add the latest batch of transactions to the blockchain and earn crypto in exchange. The network chooses validators based on the size of their stake and the length of time they’ve held it - so the most invested participants are rewarded.
Staking through PoS helps secure the blockchain - by staking you are part of the process of creating new tokens. This is different to other forms of staking such as DeFi lending, where you effectively lend your crypto through a protocol (such as AAVE) and receive interest in the form of crypto from borrowers on the other side of the transaction.
But staking as part of a PoS blockchain comes with tax implications.
Staking rewards
Because you are ‘earning’ crypto through the staking process, it is likely that the CRA will view any PoS earnings as chargeable to Income Tax. The taxable amount will be the FMV of the tokens earned through staking on the date they are received.
Selling or trading staking rewards
You will also pay Capital Gains Tax when you later dispose of the tokens earned from staking if you sell, swap, spend or gift them. The base cost will be the FMV on the date you received the tokens. Meanwhile, the disposition price will be the FMV on the day you sell, swap, spend or gift the tokens.
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 realize a capital gain or loss and pay Capital Gains Tax on any profits.
Margin fees are deductible provided they relate to your crypto trading.
In the instance of liquidation - when your collateral is sold - this is a disposition from a tax perspective.
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.
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 already know 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.
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 (unless you receive an LP token in return for your staked crypto, in which case Capital Gains Tax).
- Paying interest in DeFi protocols: Capital Gains Tax - but potentially tax deductible. If you're borrowing and using this to buy an asset (which only generates capital gains), then the interest cost is not deductible. However, if you're using this loan to 'buy' income (like buying stocks which generate dividends or invest in another DeFi platform which generates rewards) then the interest paid can be deductible against that income.
- Selling or swapping NFTs: Income Tax if you created the NFT, Capital Gains Tax if you are selling an NFT you previously purchased.
- Buying NFTs: Capital Gains Tax if you're buying with crypto, tax free if you buy with fiat currency.
- 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: Capital Gains Tax if you receive a token in exchange for your liquidity.
- Removing liquidity from liquidity pools: 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 views you as an individual investor or sees your crypto investments as more akin 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.
DeFi business income
If your DeFi transactions are regular, repetitive, intending to make a profit or of a commercial nature, you'll pay Income Tax on the entirety of your profits from DeFi investments instead of Capital Gains Tax on half. The CRA decides what is deemed to be business income or capital gains on a case by case basis so you should speak to a tax advisor for further advice on how your investments may be viewed.
NFT taxes Canada
NFTs are another area of crypto which have exploded in the past year. Whilst the CRA hasn’t issued any specific guidance on NFTs taxes, it’s reasonable to conclude that these are considered to be digital assets in the same way other cryptocurrencies are, therefore they will also be considered capital property under Canadian law. This means NFTs will be subject to the same tax rules as other crypto assets.
The tax treatment of the NFT will depend on how you interact with them. Simply minting or buying an NFT is not a taxable event.
Creating and selling NFTs
Creating and selling an NFT is akin to creating and selling any other product, and therefore qualifies as business income which will be subject to Income Tax.
As well as this, farming NFTs for a staking reward will likely be considered to be income in the same way DeFi staking rewards would be.
Selling, trading and gifting NFTs
For those not deemed to be traders, you'll pay Capital Gains Tax when:
Buying an NFT with cryptocurrency: Capital Gains Tax due on any profit made on the cryptocurrency disposed of.
Selling an NFT for cryptocurrency or fiat currency: Capital Gains Tax due on any profit made on the NFT investment.
Swapping an NFT for another NFT: Capital Gains Tax due on any profit made on the NFT disposed of.
Gifting an NFT: Capital Gains Tax due on any increase value between the date you acquired the NFT and the date you gifted it (unless it’s a gift to a registered charity, in which case it’s tax-exempt).
DAO taxes
A recent trend in crypto is the growth of DAOs (Decentralized Autonomous Organization). They are effectively member-owned communities without central leadership. It’s an organizational structure that allows stakeholders to make governing decisions without the need for any kind of centralized authority. Instead of a small Board of Directors making decisions about the company, DAOs enable the community of token holders (members) to vote on the future of the organization.
A good example of this is Uniswap. Holders of UNI tokens vote on issues relating to the protocol - for example, how transaction fees are used and what new features to add.
Members of a DAO can profit from the DAO in various ways. For example, they might receive a share of the profits which result from the activities of the DAO or they might sell their DAO tokens to investors.
The CRA has no specific guidance on the taxation of DAOs. However, given the DAO is not a registered entity in any jurisdiction and has no central control, it cannot pay taxes itself. It’s therefore most akin to a flow-through entity, which is a business entity that passes any income it makes straight to its owners, shareholders, or investors. Under this interpretation, any income passed on to the members of the DAO would likely be subject to Income Tax, and sale of DAO tokens which have appreciated since acquiring them would be subject to capital gains taxes.
Do you pay tax when spending crypto in Canada?
Yes - spending crypto on goods or services is a disposition 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 views this as a disposition 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.
When 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.
That means the tax year that Canadians are reporting on is 1 January 2022 to 31 December 2022.
Canadians need to report crypto income, capital gains and losses to the CRA by the 30 April 2023. As this deadline falls on a weekend, the tax deadline is 1 May 2023. You don't have to leave it until last minute, taxpayers can begin submitting tax returns from the end of February.
Similarly, your payment will be considered made on time if it is received by the CRA, or processed at a Canadian financial institution, on or before 1 May 2023.
If you're self-employed you have until the 15th of June 2023, but it's important to note that the payment deadline is still the 30 April.
How to report cryptocurrency on taxes in 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.
WATCH: How to file Canada crypto taxes with TurboTax and Koinly
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:
- Identify all your taxable crypto transactions for the financial year (1st Jan to 31st Dec)
- Identify which transactions are subject to Income Tax and which transactions are subject to Capital Gains Tax.
- Identify the cost basis for each transaction using the adjusted cost basis method.
- Calculate your subsequent capital gains and losses, income and expenses.
- 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 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 Canada 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 allows, so you shouldn't change it.
4. Connect Koinly to your wallets, exchanges or blockchains.
Koinly integrates with more than 700 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 dispositions, 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.
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.
8. 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.
- Calculate your crypto tax. You need to know your capital gains, losses, income and expenses.
- Complete Schedule 3 with your capital gains and losses from crypto
- Fill out your Income Tax Return and include any crypto income.
- 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 for the 2022 tax year this is the 30th of April 2023. 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.
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 of 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.
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.
It would be good practice to export all of your exchange data from Koinly at the end of each tax year. You should download and save this data so you have backing data in the event the exchange is unable to provide this in future. The CRA can challenge your cost basis if you do not have supporting evidence, so this could be vital to ensuring you do not end up paying too much tax.
How to cash out crypto without paying taxes in Canada
Want to know how to avoid tax on cryptocurrency 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 in Canada, 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!
Invest in a TSFA
Canadian residents can use a Tax-Free Savings Account (TFSA) which means that any profits made within that account are tax-free. While you can’t buy cryptocurrency directly in your TFSA, you can buy a Bitcoin Exchange Traded Fund (ETF). The ETFs track the price of Bitcoin and are aimed at individuals who wish to invest in Bitcoin without having to deal with the security and technical aspects of self custody. Whilst they are an easy way to get exposure to Bitcoin, you do not own the Bitcoins themselves, and they can also carry high management fees. Bitcoin ETFs that trade on the Toronto Stock Exchange include Purpose Bitcoin ETF (BTCC), Evolve Bitcoin ETF (EBIT) and CI Galaxy Bitcoin ETF (BTCX).
Offset your losses
You can offset half of 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 unrealized losses
Your losses are only realized once you dispose of your asset by selling it, swapping it, spending it or gifting it. But you'll have an unrealized loss if 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 rule.
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 provinces, for example, you can't currently 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.
Approved crypto exchanges in Canada
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:
Look out for CRA crypto audit 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.
FAQs
Got more on your mind? Here are our most frequently asked questions about crypto taxes in Canada:
How much is Capital Gains Tax in Canada?
There is no specific Capital Gains Tax rate in Canada. You'll pay your usual Federal and Provincial Tax rate on half of any capital gain. See the rates here.
Is Bitcoin legal in Canada?
Yes, Bitcoin is legal in Canada, as well as other cryptocurrencies. However, crypto exchanges must meet stringent operational requirements in order to operate in Canada.
Is Bitcoin mining legal in Canada?
Yes - Bitcoin mining is legal in Canada and tax free upon receipt for hobby miners! For those mining as a business, you'll pay Income Tax upon receipt and upon disposition.
Is Bitcoin taxable in Canada?
Yes. Bitcoin, Ether, Cardano, Solana and whatever else you're investing in are all taxable. The specific kind of cryptocurrency you hold does not matter to the CRA. All cryptocurrencies are taxable.
Is money made from cryptocurrency taxable in Canada?
Yes. You'll pay Income Tax on any money you make from crypto - either on the entirety of any business income or on half of any capital gain.
What happens if you don't report crypto?
The CRA doesn't take to tax evasion or fraud kindly - and not reporting, or under reporting your crypto gains and income - and you can face a fine of up to 200% of the taxes evaded and up to 14 years in prison. Find out more about crypto tax evasion.
Do I need to report crypto if I didn't sell?
Holding cryptocurrency is not taxable in Canada and therefore in many instances you won't need to report it on your taxes. However, there are a couple of specific exceptions to this rule - like if you held foreign assets (other than crypto) - over $100,000, then you may need to report the value of all your foreign assets including crypto assets. For the majority of investors though, you won't need to report crypto you hold to the CRA.
What is the Canadian tax year?
The Canadian tax year runs from the 1st of January to the 31st of December every year, with tax returns due by the 30th April every year.
The information on this website is for general information only. It should not be taken as constituting professional advice from Koinly. Koinly is not a financial adviser. You should consider seeking independent legal, financial, taxation or other advice to check how the website information relates to your unique circumstances. Koinly is not liable for any loss caused, whether due to negligence or otherwise arising from the use of, or reliance on, the information provided directly or indirectly, by use of this website.