In 2024, if you're involved in airdrops, forks, receiving gifts, or mining, it's important to keep up with the tax rules laid out by the Canada Revenue Agency (CRA). We will break down how these particular transactions are taxed and what you should be aware of for this year.

How is Airdrops Taxed in Canada

In Canada, when you receive free tokens or coins through airdrops – where they just drop into your account – you won't face immediate taxes. The tricky part comes into play when you start spending, swapping, gifting, or selling these airdropped cryptos. If you're an individual trader and not running a business, the Canada Revenue Agency (CRA) is less likely to view airdrops as income. 

Capital Gains Tax on Airdrops:

The CRA typically doesn't treat airdrops as income, especially for individuals who are trading, not operating as a business. However, remember that when you sell the airdropped crypto, Capital Gains Tax comes into play.

Example: 

You hold a cryptocurrency wallet, and on a particular day, you receive an airdrop of 200 tokens of a new cryptocurrency, 1INCH. The Fair Market Value (FMV) of 1INCH on that day is $3.

The Canada Revenue Agency (CRA) is unlikely to consider airdrops as income, especially if you're seen as an individual trader rather than operating as a business. Therefore, receiving the 1INCH tokens in the airdrop is generally not subject to Income Tax.

For a period, you decide to hold onto these airdropped 1INCH tokens without any additional transactions.

After two months, you decide to sell all 200 1INCH tokens when the FMV has risen to $4 per token.

Since airdrops are not taxed upon reception, the Capital Gains Tax applies when you later sell, swap, gift, or spend the tokens received.

• Sale Proceeds (FMV at Sale): 200 1INCH * $4 = $800
• Original Cost Basis: 200 1INCH * $0 (considered zero for airdrop) = $0

To calculate the capital gains, subtract the original cost basis from the sale proceeds.

Capital Gains: $800 (Sale Proceeds) - $0 (Original Cost) = $800

In Canada, only 50% of capital gains are taxable. Therefore, you'll only be taxed on half of the capital gain.

Taxable Capital Gain: $800 / 2 = $400

Assuming a Capital Gains Tax rate of, for example, 20%, the tax liability would be:

Tax Owed: $400 (Taxable Capital Gain) * 0.20 (Tax Rate) = $80

Forks

Hard forks, where a blockchain splits into two, also pose taxation considerations. While the CRA hasn't issued specific guidance on hard forks, the tax treatment is contingent on how you're viewed as a taxpayer.

Capital Gains Tax on Forks

Similar to airdrops, you won't likely pay tax upon receiving coins from a fork as an individual investor. However, when you later sell, swap, spend, or gift these forked coins, Capital Gains Tax applies. The cost basis for these new coins is typically considered zero, leading to potential tax on the total value upon disposition.

Crypto Gifts and Donations Tax

Capital Gains Tax on Crypto Gifts

Gifting crypto is seen as a disposition, and you'll pay Capital Gains Tax on any profit. The recipient uses the FMV of the asset on the day they received it as their cost basis for future transactions.

Example: 

1. Original Acquisition:

You purchased 10 Moonriver (MOVR) tokens in December 2020 at a Fair Market Value (FMV) of $100 per token. Your total acquisition cost is $1,000 (10 tokens * $100).

2. Gifting Decision:

In December 2021, the FMV of Moonriver tokens has increased, and each token is now valued at $500. At this point, you decide to gift all 10 MOVR tokens to your friend.

3. Capital Gains Tax Calculation:

Since gifting crypto is treated as a disposition, Capital Gains Tax applies to any profit made from the increase in value between the time of acquisition and the time of gifting.

Sale Proceeds (FMV at Gifting): 10 MOVR * $500 = $5,000

Original Cost Basis: 10 MOVR * $100 = $1,000

4. Capital Gain Calculation:

To calculate the capital gain, subtract the original cost basis from the sale proceeds.

Capital Gain: $5,000 (Sale Proceeds) - $1,000 (Original Cost) = $4,000

5. Tax Liability:

In Canada, only 50% of capital gains are taxable. Therefore, you'll only be taxed on half of the capital gain.

Taxable Capital Gain: $4,000 / 2 = $2,000

6. Tax Calculation:

Assuming a Capital Gains Tax rate of, for example, 20%, the tax liability would be:

Tax Owed: $2,000 (Taxable Capital Gain) * 0.20 (Tax Rate) = $400

Donating Crypto to Charity

Donating crypto to a registered charity is considered a disposition with tax consequences. Capital Gains Tax applies if your crypto has increased in value from acquisition to the time of donation. The deemed fair market value rule is followed, and tax receipts from charities may be based on the obtained value.

Example: 

1. Initial Acquisition:

In December 2020, you bought 1 Ethereum (ETH) at a Fair Market Value (FMV) of $600.

2. Decision to Donate:

In December 2021, you decide to contribute this 1 ETH to a registered charity. At this time, the FMV of Ethereum has increased, and it's now valued at $4,000.

3. Capital Gains Tax Calculation:

Since donating crypto is viewed as a disposition, Capital Gains Tax applies to any profit made from the increase in value between the time of acquisition and the time of donation.

Sale Proceeds (FMV at Donation): 1 ETH * $4,000 = $4,000

Original Cost Basis: 1 ETH * $600 = $600

4. Capital Gain Calculation:

To calculate the capital gain, subtract the original cost basis from the sale proceeds.

Capital Gain: $4,000 (Sale Proceeds) - $600 (Original Cost) = $3,400

5. Taxable Capital Gain:

In Canada, only 50% of capital gains are taxable. Therefore, you'll only be taxed on half of the capital gain.

Taxable Capital Gain: $3,400 / 2 = $1,700

Crypto Mining Tax in Canada

For crypto miners, the scale and intent of your mining activities determine the tax treatment, ranging from Capital Gains Tax to Income Tax.

Hobby Mining

If the CRA views your mining activities as a hobby, you won't pay Income Tax when receiving mined coins. However, when you later dispose of these coins, Capital Gains Tax applies, considering the cost basis of mined coins as zero.

Business Mining

For those treating mining as a business, the cryptocurrency is considered inventory. You'll pay Income Tax based on the chosen valuation method for the inventory. It's crucial to factor in costs associated with mining activities, such as electricity and equipment, on a per-coin basis.

Kryptos - Crypto Taxes Made Effortless

When it comes to airdrops and forks, clarity is key. Kryptos takes the guesswork out of the equation, ensuring your tax calculations align with the CRA's guidelines.

1. Quick Setup with Kryptos

• Sign up for a FREE Kryptos account in just a minute.
• Choose Canada as your base country and Canadian Dollars as your currency.
• Select the adjusted cost basis method, supported by Kryptos and approved by the CRA.

2. Seamless Integration

• Connect Kryptos to your wallets, exchanges, or blockchains effortlessly.
• With compatibility across 3000+ DeFi protocols, you can trust Kryptos to cover your specific needs.

3. Automated Number Crunching

• Let Kryptos do the heavy lifting. While you enjoy a coffee, Kryptos calculates your cost basis for every crypto asset, including popular ones like ETH, ADA, Bitcoin, and more.
• Watch as Kryptos breaks down each capital gain or loss from your dispositions, along with comprehensive reports on crypto income and expenses.

4. Instant Tax Reports

• Ta-da! Your data is gathered, and your full tax report is generated seamlessly.
• Head to the tax reports page in Kryptos to explore your tax summary, covering net capital gains, other gains, income, costs, expenses, gifts, donations, or any lost crypto.

FAQs

1. How are Airdrops Taxed in Canada?

Airdrops are not taxed upon receipt in Canada. However, when you sell, swap, gift, or sell the airdropped crypto, Capital Gains Tax applies.

2. What is the Capital Gains Tax on Airdrops in Canada?

Capital Gains Tax is applied when you sell airdropped tokens. Only 50% of the capital gains are taxable. Calculate the tax owed based on the taxable capital gain and the applicable tax rate.

3. How are Hard Forks Taxed in Canada?

Hard forks are not taxed upon receipt. However, when you sell, swap, spend, or gift the forked coins, Capital Gains Tax applies.

4. What is the Taxation Process for Crypto Gifts in Canada?

Gifting crypto is treated as a disposition, subjecting you to Capital Gains Tax on any profit. Calculate the tax liability based on the taxable capital gain, considering only 50% of capital gains are taxable.

5. How is Crypto Mining Taxed in Canada?

For hobby mining, there's no Income Tax upon receiving mined coins. When you sell them, Capital Gains Tax applies with a zero-cost basis. For business mining, Income Tax is levied based on the chosen valuation method for the inventory, considering associated costs.

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All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!