Key takeaways
- In Canada, cryptocurrency is treated as property. Depending on the nature of the transaction and its purpose, crypto gains can be taxed as capital gains or income.
- Specific crypto transactions are taxable, including selling, exchanging and using crypto for purchases. Income from crypto through mining or payments is also taxable.
- Federal tax rates apply across Canada, but provincial rates vary. Business income from crypto is fully taxable, while only 50% of capital gains are taxable.
- Canadians can offset capital losses from crypto against gains to reduce tax liability. Sometimes, lost or stolen crypto may be claimed as a capital loss if sufficient proof is provided.
Canada has taken a proactive approach toward crypto taxation. The tax regime for crypto is designed in line with the fast-evolving technology while keeping it as close to mainstream taxation as possible regarding income tax and capital gains tax.
In Canada, cryptocurrency is classified as a property, meaning that crypto transactions — such as buying or selling — are subject to income tax if they generate income or capital gains tax if they fall under investment activities. Tax implications vary based on the type of transaction and how the crypto was acquired.
This Canada crypto tax guide 2024 breaks down how cryptocurrencies like Bitcoin (BTC) and Ether (ETH) are taxed. It covers steps for Canadian residents, from capital gains on crypto sales to income from mining or staking. You understand what transactions are taxable, how to calculate your obligations and when to report them.
Overview of crypto taxation in Canada
Any profits you derive from cryptocurrency transactions are subject to income tax as business income or capital gains. Therefore, it is important to determine if your cryptocurrency transactions come under business operations or capital gains. 100% of business income is taxable, while 50% of capital gains are taxable.
As cryptocurrency is not accepted as legal tender in Canada, paying for goods or services with crypto is considered bartering and has associated tax implications. Canadian taxpayers who receive goods or services in return for cryptocurrency may either experience a capital gain or a loss based on the cryptocurrency’s value change since the purchase.
Canada doesn’t have separate tax rates for short-term and long-term cryptocurrency gains. These gains are taxed at your regular federal and provincial income tax rates.
The tax filing deadline for most people is April 30, following the end of the tax year. Self-employed individuals have until June 15, and the deadline for deceased individuals may vary.
Federal and provincial crypto tax rates in Canada
Federal tax rates are implied all across Canada, while provincial tax rates differ in each province.
Here are the federal income tax rates prevalent in Canada for the 2023 and 2024 financial years:
Did you know? When asked about taxing cryptocurrency in a survey, 46.5% of respondents in Canada were in favor, 34.3% were against it, and 19.2% had no strong opinion.
Provincial tax rates in Canada
Each province in Canada has a different tax rate. You must determine the prevalent tax in your state and add it to the federal tax rate to arrive at your cumulative tax rate.
Provinces in Canada include Newfoundland and Labrador, Prince Edward Island, Nova Scotia, New Brunswick, Quebec, Ontario, Manitoba, Saskatchewan, Alberta and British Columbia, as well as three territories: Yukon, Northwest Territories and Nunavut.
Here is an example to demonstrate how you can calculate crypto taxes in Canada:
- Living in Alberta, Canada you make a crypto capital gain of $10,000.
- The Canada Revenue Agency (CRA) requires you to pay tax on half of this gain, making $5,000 your taxable amount.
- You’ll pay federal tax at 15% and Alberta provincial tax at 10%, totaling a 25% tax rate on the $5,000.
- So, 25% of $5,000 = $1,250, which is the tax you’ll pay on your capital gain.
Determining taxable events in Canada
In Canada, cryptocurrency transactions are taxed based on specific “taxable events.” Certain activities may result in either capital gains or income tax obligations. Here are the primary taxable events in Canada:
- Selling crypto for fiat: Depending on the valuation at the time of sale, you will be taxed on your gain or loss when you sell crypto for Canadian dollars or any other fiat currency.
- Swapping your cryptocurrency for another: When you exchange a crypto asset you hold for another, your profit is taxed. Any profit or loss is calculated using the proceeds from selling the original cryptocurrency for Canadian dollars.
- Using crypto to purchase goods or services: Using cryptocurrency to purchase goods or services is taxable. You need to report any increase or decrease in the value of your cryptocurrency between the time of purchase and the time of spending.
- Earning crypto as income: If you have gained crypto through mining, staking or as a payment for your services, it is deemed income. You need to report this income based on the crypto’s fair market value (FMV) at the time of receipt.
Did you know? Most Canadian crypto investors will use Schedule 3 - Capital Gains to report their crypto-related capital gains. However, if your crypto activities constitute a business, you must report them on Form T2125 and pay income tax.
What is business income in Canada in the context of crypto?
The CRA’s definition of business income from crypto is somewhat ambiguous. It determines whether your crypto activities constitute business income or capital gains on a case-by-case basis. This means that one transaction of yours may be classified as business income, while the next may be capital gains.
The more active and profitable your crypto trading is, the higher the chance your profits are considered business income rather than capital gains.
According to the CRA, the following indicators suggest business income:
How to calculate gains on crypto in Canada
When calculating your crypto tax in Canada, the first step is determining if the tax is payable on 50% of your capital gains or 100% if you are a professional crypto trader or sell crypto as a business.
Gains for individual traders
The government taxes 50% of the profits you make from selling your crypto for a profit. Here is a simple example to help you understand how it works.
- You buy $1,000 worth of Ether (ETH).
- You sell it for $1,500.
- You will owe taxes on $250, which is 50% of the total profit of $500.
Cost basis method to calculate capital gains and losses
The CRA requires the adjusted cost basis method to calculate your crypto capital gains and losses. It takes into account any associated fees when considering the original cost of your crypto assets.
You can determine your cost basis using either the asset’s FMV at the time of purchase or the year-end FMV, whichever is lower.
You may value your entire portfolio based on its year-end FMV if you hold diverse crypto holdings. The CRA suggests using the average cost basis method, which includes the superficial loss rule if you hold multiple crypto assets. The superficial loss rule prevents taxpayers from claiming capital losses on crypto assets if they repurchase similar assets within 30 days of the sale.
If you acquired crypto for free, such as through an airdrop or a gift, your cost basis will be zero. Therefore, any subsequent sale will result in a taxable capital gain equal to the full sale price.
Crypto tax in Canada on professional traders and businesses
In Canada, if you are trading as a business or a professional trader, all profits are treated as business income rather than capital gains. This means you cannot benefit from the 50% capital gains inclusion rate; instead, 100% of your profits are subject to income tax at business rates. The taxable amount is calculated based on the FMV of crypto assets when they are received or traded.
Here is an example of how crypto tax affects professional traders and businesses.
- You buy $10,000 worth of Bitcoin (BTC).
- You sell it for $15,000.
- You will owe taxes on $5,000, which is 100% of the total profit of $5,000.
Crypto tax exemptions in Canada
In Canada, some activities are exempt from taxes. Holding cryptocurrency without making any transactions does not result in a tax event. Moving cryptocurrency between your crypto wallets is tax-free, as no sale or conversion is involved.
Crypto is tax-free in Canada if you:
- Buy crypto with fiat currency and hodl it
- Move crypto between your wallets
- Receive crypto as a gift
- Create a decentralized autonomous organization (DAO).
Did you know? In the initial days of cryptocurrencies, the anonymous nature of blockchain transactions made it difficult for tax authorities to identify the parties involved in cryptocurrency transactions.
Offset crypto capital losses in Canada
If you have incurred any loss while trading crypto in Canada, you won’t need to pay any capital gains tax. You could use capital losses to reduce your tax bill.
You can deduct your capital losses from your capital gains for the tax year to lower your total tax liability.
Your capital losses are also subject to the 50% rule for capital gains. This implies that you can only deduct half of your net capital loss in a specific tax year. You can carry this amount to subsequent fiscal years to offset future earnings. The law also allows you to carry forward half of your capital losses to offset future gains if you don’t have any capital gains in a given year.
Penalty for crypto tax evasion in Canada
If you are not paying your crypto taxes, the tax authority might demand that you pay the amount you owe, along with a penalty and a hefty interest rate. You might end up losing all you have gained plus more.
In Canada, evading taxes on cryptocurrency carries a harsh penalty, and you might even be jailed. The CRA has a conviction rate of around 90%. The CRA’s website enlists the following possible sanctions for tax evasion:
- A penalty equal to 200% of the taxes avoided plus the additional amount evaded
- Five years in prison
- The maximum penalty for tax fraud is 14 years in jail
- Limitations on travel.
Can Canadian regulatory agencies track crypto transactions?
Indeed, they can. Even though cryptocurrency provides some anonymity, regulatory agencies like the CRA can track transactions. Cryptocurrency exchanges must notify the CRA of transactions above $10,000 to maintain compliance.
For transactions below this threshold, crypto exchanges in Canada must collect customer information. The regulatory agencies may seek the information from exchanges when required. To ensure compliance in Canada, it is important to disclose all your transactions in detail to the regulatory agencies and maintain transparency.
Tax on lost or stolen crypto in Canada
Recovering lost or stolen crypto is usually challenging due to the unregulated nature of the market. But if you are a Canadian taxpayer, you may be able to claim a capital loss on your taxes if your crypto is lost or stolen.
The CRA hasn’t provided specific guidance on crypto losses; however, it allows taxpayers to deduct capital losses if they suffer a crypto loss due to theft or losing it unwittingly. Therefore, it is reasonable to assume that lost or stolen crypto could be considered a capital loss, similar to other assets. You must provide substantial proof, such as receipts and wallet addresses, to claim this loss.
If you can recover your lost crypto, such as an exchange refund for the theft, you may not be eligible to claim a capital loss. In case of a rug pull, where you hold the coins but they have lost their value, you may not be able to claim crypto loss as well.