Cryptocurrency trading and investment are now line items for your taxes. That’s right, cryptocurrency income is treated the same as earning Canadian dollars, and they’re definitely taxable according to the CRA.
You might be confused about how you should be factoring your cryptocurrency earnings into your tax filing, and it can be stressful trying to minimize the amount of taxes you owe while properly reporting all your earnings. But no worries—we’re here to clarify taxes for crypto for you.
Here’s what you need to know about cryptocurrency taxes and how you can calculate and report your crypto gains and losses for 2023.
- Cryptocurrencies of all kinds and NFTs are taxable in Canada. They’re considered business income or capital gains.
- You may need to pay GST/HST on business transactions where you accepted payment in crypto, and you’ll need to calculate and remit the amounts owed based on when they took place.
- Not reporting your crypto income to the CRA is considered an offense and comes with penalties and legal consequences.
Cryptocurrency and your taxes
Cryptocurrencies are digital currencies that are secured using cryptography, which makes them impossible to counterfeit and secures them as valuable assets. Cryptocurrencies, tokens, and NFTs are considered a commodity by the CRA, which means that any earnings you make from them are either capital gains or business income.
Remember that different types of cryptocurrency are considered individual assets. For example, if you have earnings from Bitcoins and Litecoins, they’re each valued separately and also need to be reported separately.
Crypto is also taxed based on “disposition”, or when you get rid of something by selling, giving, or transferring it. This means that you don’t need to pay taxes on gains made while holding crypto. However, anytime you either sell, trade, exchange, convert, or buy items with cryptocurrency, you’re subject to taxes.
If you’ve made any income through the disposition of crypto this year, you’ll need to report those earnings on your taxes for the current season.
When do I owe taxes on cryptocurrencies?
You report taxes on cryptocurrencies whenever you go through taxable events, which are any situations where you “realize” or generate income. Realizing income can happen in a number of different scenarios, which can make it hard to tell if your situation counts.
If you trade crypto regularly and as part of your day job, then your earnings are considered business income, and you need to report 100% of your earnings on your tax return.
On the other hand, if you trade crypto more casually, and your actions show your activities are general investments, then any income is considered capital gains instead, which are 50% taxable.
Learn more about how to decide whether your cryptocurrency activity is considered income or capital gain here.
How do you calculate and report cryptocurrency on your taxes?
To make things simple, you should first figure out whether your cryptocurrency earnings are considered capital gains or business income.
If you’ve made profits from trading from Bitcoin, Ethereum, or any other type of cryptocurrency, it’ll be considered a capital gain, just like trading stocks or gold. Half of these earnings are considered for tax purposes and should be reported using Schedule 3.
But, if you’ve gotten any cryptocurrency by mining, it’s an entirely different scenario. The CRA always considers 100% of the amount you make from mining cryptocurrency for tax purposes, and it has to be reported on your return using a T2125 form. This is because the CRA doesn’t consider crypto mining to involve any initial investment—you’re putting in the work to acquire something of value, which is essentially business income.
Let’s look at an example of how to calculate your cryptocurrency taxes:
David sells some of his old belongings to a buyer who pays him $3,000 worth of Bitcoin. David keeps the Bitcoin for a year, during which the value of his Bitcoin jumps to $4,000 and he decides to convert them to Canadian dollars.
The difference in value from when David bought and sold the Bitcoin is:
$4,000 – 3,000 = 1,000
David has earned $1,000 from his cryptocurrency activities, but because his earnings were due to capital gains, he is only taxable on 50% of the value, or $500.
You can learn more about capital gains and loss calculations here.f
I am pretty meticulous and up-to-date on my tax strategies and deductions yet TurboTax found me another $124 dollars… Ka-ching!
Do I need to pay GST/HST on cryptocurrency earnings?
Depending on whether you paid for a property or service using crypto, you may need to pay GST/HST on those transactions if you haven’t already. These sales tax amounts are calculated based on the fair market value at the time of the exchange.
This means if you or your business accepts cryptocurrency as a valid form of payment for any products or services that are taxable, you’ll need to manually calculate and report the owed GST/HST amounts for that sale based on the crypto values that day.
NFTs and taxes
NFTs, or non-fungible tokens, are considered a form of cryptocurrency, and are usually in the form of digital assets like songs, images, videos, and so on. Any income you make from selling, trading, exchanging NFTs is taxable, though just like stocks and crypto, NFTs aren’t taxable when you buy them or if they become more valuable while in your possession.
How your NFT dealings get taxed depends on whether you made money from your own original NFT, or whether you sold an NFT you previously purchased:
- If you created and sold/traded your own NFT, it’s considered business income, and 100% of the earnings are taxed.
- If you sold a previously purchased NFT, it’s considered capital gains, and only 50% of your earnings get taxed.
What happens if you don’t report your crypto this tax season?
As far as the CRA is concerned, cryptocurrency earnings are the same as Canadian dollar earnings and are subject to all the same tax obligations.
Note that you should always be keeping a record of your trades and monetary dealings—this applies to cryptocurrencies as well. Doing this lets you track your capital gains and losses, and without the right records, the CRA might overtax you or refuse to accept your losses as valid.
It might seem like with the anonymous nature of most cryptocurrency dealings, the government isn’t going to find out if someone doesn’t report their earnings. But the fact is that the CRA is very capable of tracking your income and figuring out if you’re not reporting all your income through audits and investigations.
The consequences of not reporting crypto are the same as not reporting Canadian dollar earnings and are considered tax evasion. This comes with severe consequences that should be avoided at all costs. Make sure to report your earnings as accurately and honestly as possible, and if you’re unsure on how you should be handling crypto earnings this tax season, TurboTax is here to help. We can help you navigate cryptocurrency taxes for this year so you’re 100% confident in your filing.
How to pay lower taxes on your crypto
If you’re looking to save on taxes for your cryptocurrency earnings this season, there are a handful of useful strategies that might be helpful, depending on your tax situation:
1. Cryptocurrency gains can be offset by capital losses
Just like regular capital gains and losses, keeping track of your cryptocurrency earnings and losses can be very helpful in minimizing how much tax you end up owing. Crypto losses can be carried forward into future tax years and claimed against any crypto gains, which effectively reduces how much taxes you’ll end up paying in the long run.
2. Donations using crypto are tax-free
If you donate to a charity that accepts crypto, you can claim your contribution on your tax return and offset any capital gains you’ve made for the year. You’ll also be supporting a good cause, which has its own benefits, effectively taking care of two birds with one stone.
3. The basic personal amount
If your only income is through crypto, the basic personal amount allows you to earn $15,000 before you need to pay taxes. For anyone that only makes income through cryptocurrency investments and trading, this effectively ensures you can maintain a basic level of income before being taxed.
Investor taxes, covered
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