Cryptocurrency has revolutionized the financial landscape, offering Canadians innovative ways to invest, trade, and transact. This innovation, however, comes with the responsibility of understanding how taxes apply to your digital assets. In Canada, the Canada Revenue Agency (CRA) views cryptocurrency as a commodity, subjecting it to specific tax rules. Whether you're a seasoned trader, casual investor, or business owner accepting crypto payments, understanding these regulations is essential for staying compliant and avoiding costly penalties.
This ultimate guide provides a comprehensive overview of cryptocurrency taxation in Canada. We’ll break down key concepts, such as capital gains, business income, and the Adjusted Cost Base (ACB), while exploring scenarios like crypto-to-crypto trades, mining income, and lost or stolen assets.
Although navigating the world of crypto taxes can feel overwhelming, having the right information can help you approach tax season with confidence. Let’s dive in and demystify cryptocurrency taxation in Canada.
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Is cryptocurrency taxable in Canada?
Cryptocurrency transactions are taxable in Canada and have been treated that way since 2013. The CRA (Canada Revenue Agency) treats cryptocurrency as a commodity, meaning it is subject to rules that apply to barter transactions. When you use cryptocurrency in a barter transaction, the CRA treats it as a disposition, meaning you may realize a capital gain or loss. It is in the capital gain or loss that is taxable.
How much tax do you pay on crypto in Canada?
The amount of tax to be paid on cryptocurrency depends on the type of transaction and one's overall taxable income. Most people who invest in and sell cryptocurrency will pay on 50% of the capital gain. If you bought bitcoin at $10,000 and sold it for $22,000, your capital gain is $12,000. 50% of that profit ($6,000) is taxable and must be reported as income. This $6,000 is added to your taxable income, and your tax rate depends on your income bracket. Starting June 25, 2024, the capital gains inclusion rate will be increased from one-half to two-thirds for capital gains of over $250,000 per year for Canadians, and on all capital gains for corporations and most types of trusts. Regarding changes to the percentage of capital gains subject to capital gains tax, we confirmed with our local tax advisor that the amendment has not yet been officially approved by the Canadian parliament.
Is any crypto tax-free in Canada?
Some cryptocurrency transactions and activities are tax-free. These include holding crypto (HODLing), transferring between wallets, buying cryptocurrency with fiat (CAD), receiving cryptocurrency as a gift, transferring crypto to spouse, borrowing cryptocurrency, and personal use under $1000.
Can the CRA track crypto?
The CRA can track cryptocurrency transactions and actively do so. They use tools, partnerships, and legal powers to monitor crypto activities and ensure that taxpayers are reporting their crypto gains or income correctly.
The CRA & cryptocurrency tax
The CRA issued its first statement in 2013, explaining that Bitcoin and other cryptocurrencies are taxable under the Income Tax Act. The agency clarified that cryptocurrency is not considered legal tender but is treated as a barter transaction when used to purchase goods and services.
In 2018, the CRA began actively enforcing cryptocurrency taxes and conducting audits on individuals with large crypto holdings. They partnered with tax software providers to track crypto transactions and began requesting customer information from Canadian crypto exchanges.
In 2019, the CRA added a question to T1 Personal Income Tax Forms, asking Canadians if they had disposed of any cryptocurrency during the year. This signaled a clear message that the CRA is watching cryptocurrency.
In 2020, the CRA began requesting information from major Canadian crypto exchanges to ensure that individuals were reporting crypto-related income. In the following year, they participated in international data-sharing initiatives like the Joint Chiefs of Global Tax Enforcement (J5) to track cross-border crypto activities.
As of 2023, new reporting rules under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act require crypto exchanges in Canada to report all transactions over CAD $10,000 to the government.
How is cryptocurrency taxed in Canada?
Cryptocurrency in Canada is taxed based on how you use it. Depending on your cryptocurrency transactions, your activity may be taxed as capital gains or business income. If you are a holder (hodler), or invest in crypto-assets, your transactions will likely be taxed as capital gains.
Business income or capital gain
Depending on how you have approached your investment, your crypto asset activity could be treated “as a business” or “as a hobby”.
Transactions made “as a hobby”, which covers investing or participating in crypto and selling crypto assets or other dispositions, will be treated as a capital gain or loss.
Transactions made “as a business”, which includes trading, mining, or using crypto for payment of service, will be treated as business income and will incur income tax.
The CRA can go over transactions and will classify these as a capital gain or business income on a case-by-case basis.
While no single factor may definitively classify your activities as a business, the combination of several factors could indicate otherwise. Determining whether you are carrying on a business depends on the specific circumstances of each case..
Crypto capital gains Canada
Cryptocurrency capital gains occur when you dispose of cryptocurrency for a profit. This is treated as a taxable event by the Canada Revenue Agency (CRA).
A capital gain happens when you sell or dispose of a crypto asset for more than its Adjusted Cost Base (ACB), which is essentially the total average price you paid to acquire it plus associated costs (e.g., transaction fees).
50% the capital gain is then added to your taxable income, and your tax rate depends on your income bracket.
Cryptocurrency Capital Gains Tax Rate Canada
Taxes are calculated based on a combination of federal tax brackets and provincial/territorial tax brackets. Your tax bracket must be calculated in the province you reside in.
Federal Income Brackets (2023)
Cryptocurrency capital losses
Crypto capital losses occur when you sell cryptocurrency for less than its Adjusted Cost Base (ACB). These losses can reduce your overall tax burden by offsetting capital gains. The capital loss can be applied up to three years prior if you don’t have enough gains for the current year. If the losses cannot be used for the current year or previous years, capital losses can be forwarded to offset future capital gains.
Tax on lost or stolen cryptocurrency
The CRA has not given a statement about stolen cryptocurrency and how it would apply to your tax return. Under Canadian law, cryptocurrency is treated as capital property, and a deduction could be made if theft is proven. Keeping detailed records of the theft is key to making an accurate deduction.
How to calculate gains on crypto in Canada
Crypto capital gains are calculated when you sell your crypto for higher than its Adjusted Cost Base (ACB). If the transaction is more than the average cost of acquiring the crypto asset, 50% of that gain will be taxed.
Example.
You buy 0.2 bitcoin at CAD $30,000. Next month, you buy 0.2 bitcoin at CAD $40,000. A month later, you buy 0.1 bitcoin at CAD $50,000.
You sell 0.5 bitcoin at CAD $85,000.
Your ACB is 38,000. Here is the calculation.
| (0.2/0.5) x 30,000 + (0.2/0.5) x 40,000 + (0.1/0.5) x 50,000 |
Proceeds of sale = $42,500.
Transaction Fees = $100.
Capital gain = 42,500 - 38,000 - 100 = 4,400.
Taxable portion = 50% x 4,400 = 2,200.
This $2,200 is added to your taxable income, and your tax rate depends on your income bracket.
Canada cost basis method
Calculating the cost basis (known as Adjusted Cost Base, or ACB) for cryptocurrency is required for determining taxable capital gains or losses when preparing records for the CRA. The cost basis method is applied when selling, trading, or using crypto for purchases. The Adjusted Cost Base must be applied to each crypto asset that is held. The taxpayer must track the purchasing cost of the amounts of a specific cryptocurrency.
In Canada, calculating the cost basis (referred to as the Adjusted Cost Base, or ACB) for cryptocurrency is essential for accurately determining taxable capital gains or losses. The ACB method is required by the CRA and applies whenever you dispose of cryptocurrency, whether by selling, trading, or using it for purchases. Here's a detailed guide:
Crypto tax breaks
There are no outright tax breaks that focus on crypto, but there are ways to reduce or defer taxes on crypto assets without getting into trouble. Some of these tax strategies already exist for stocks and commodities. While cryptocurrency isn’t exactly either, the CRA uses these definitions to tax crypto fairly.
Moving Crypto is tax free
- Wallet to wallet transfer do not trigger a taxable event. Fees related to the transfer will incur taxes and must be reported in your tax filing.
Capital loss reductions
- Just like selling your crypto above its ACB is taxed, so is selling below it. That loss can reduce your gains for the year. And if you have no capital gain, that capital loss can be used for filings three years prior, or for future filings.
Income Splitting
- If you are mining or trading profitably and your spouse or family member is in a lower tax bracket, you may pass some of the income of the business to them. This will lower your overall tax obligations.
Tax loss selling
- This is a type of strategy that harvests losses if you had capital gains that year. You would sell some of your poor performing crypto assets to realize the loss and offset gains from other positions. Under CRA guidelines you can repurchase those crypto assets no sooner than 30 days.
Business deductions
- If you mine cryptocurrency, you can deduct certain cost expenditures. These could be electricity, equipment, and maintenance. Deductions would affect your taxable income and create a lower obligation.
Crypto donations
- Donating directly to a registered charity may create a donation tax credit. It is calculated by using fair market value at the time of the donation.
Defer your crypto gains - If you predict that the next year will be a slump, you can delay the sale of the crypto asset to that year creating a lower tax obligation.
Crypto Income Tax
If you are being paid in crypto for a service, the full amount of profit will be taxed at your marginal tax rate. This cryptocurrency income tax has the same rules for individuals and businesses that are earning income with crypto. When you receive crypto as payment, you must record the fair market value, as well as the date you were paid. Your Federal and Provincial Income Tax rates will be applied to the FMV of the transaction, creating the tax obligation.
How to calculate crypto Income Tax
Calculating income tax from crypto can be confusing. It involves quite a bit of recording keeping to make a fair tax obligation. When receiving crypto as an income from a service, or for profit, fair market value of the cryptocurrency must be recorded. These records should include the time these payments were received.
Here is an example of a calculation.
Example.
You live in Toronto, Canada.
You received 1000 Doge January 6, 2023 for moving furniture.
On Jan 6, 2025 1 Doge = CAD 0.5565
1000 Doge x 0.5565 = 556.50
You earn $55,000 in taxable income and you’ve earned $556.50 in crypto income that year.
Your Federal tax rate is 20.5% and your Provincial tax rate is 9.15%
Crypto tax rate = 20.5% + 9.15% = 29.65%
Your tax obligation = 29.65% x $556.50 = $165.00
Crypto Record-Keeping Tips
The internet of money does indeed feel like money, but the CRA treats crypto as a commodity. Cryptocurrency activities are treated as barter transactions, and when they are disposed of or sold, the time and market value must be recorded. Keeping records of when you’ve bought, sold, received, and transferred crypto must be done for accurate tax reporting.
Basic transaction details
- Certain details of activities are a must. These are, Date and Time, Transaction Type, Quantity, Fair Market Value (FMV), Wallet Addresses, and Transaction fees. There are also special details for specific scenarios that also need to be recorded. These details are, Crypto-to-Crypto trades, Staking Rewards, Mining Income, and Gifts or Donations.
Spreadsheets
- There is a lot to track, and there is a lot to sort in a time stamped matter. With all this data, spreadsheets are a huge benefit for record keeping. Even the math can be calculated to suit your needs with your crypto activities. Have columns for date, transaction type, quantity, ACB, FMV, wallet addresses, and fees. Rows will be transaction specific and could correspond with other or more transactions.
Exchange and Wallet Logs
- Many exchanges and wallets allow you to create reports on your transactions. These logs help gather details that you’ll need to file taxes correctly. While saving hours on manual data entry, the formatting of these logs will differ from exchange to exchange. Some extra data management will be needed to create accurate records.
Crypto Tax Software
- Making accurate records can be challenging and may cost you more in taxes if there is an error. Tax software for crypto is a great way to make detailed records that integrate with exchanges and wallets. These solutions take your transactions and automatically sort this info to create reports for the CRA.
Some software like cryptact can take custom files from hard to support exchanges and create records for you.
cryptact will also allow you to see your current positions, and book values in real time. If you are not using a tax software, you could be owning more taxes than you should.
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