One thing that is very controversial nowadays is – digitalization of currency, there are many coins in the digital currency market, which can be bought through investment brokerages or crypto brokerages. The most asked question from our customers, who are actively investing, is about (yes! you guessed it right) the taxation of cryptocurrency.
CRA’s treatment of Crypto
It’s good to understand how Crypto is taken by CRA before investing or trading in it. CRA treats it as a commodity, which means it’s different than stocks. Any gains from selling crypto or by making a purchase using crypto, are treated as either business income or capital gains.
This means as business income and capital gains are taxable, any losses whether from the crypto business income or capital gains can be used to reduce business income and capital gains (capital gains can be carry forwarded or can be applied to the preceding three years capital gains or business income).
Note: capital losses can only be used to reduce capital gains, can’t be used to reduce any other income from any source.
General Cases where crypto gains can be business Income:
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- cryptocurrency mining
- cryptocurrency trading
- cryptocurrency exchanges, including ATMs
General Cases where crypto gains can be Capital Gains:
Note: To learn how capital gains are taxes, read our blog on Capital Gains Taxation
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- Not trading regularly, but using to purchase goods and services
- Not trading regularly, but selling crypto to buy another type of crypto
*Exceptions are always there to the rules and can vary case by case.
I Hope, this answers some of your questions, and I recently read an article from Financial Post, and CRA’s – Guide for Cryptocurrency users and tax professionals. Links are below, in both of these writings, Crypto Taxation is explained in layman’s language, will be helpful to the taxpayers who are already investing or trading in crypto or looking to do so in the future.
Feel free to contact us, for any of the tax-related services.