Declare Your Cryptocurrency to the CRA: Step-by-Step Guide for Canadians

by
Brihasi Dey
Reviewed by
min read
Last updated:

The CRA has clearly defined that cryptocurrency is subject to taxes. How you will be taxed depends on whether you are seen as an individual or a business and your income bracket. But in all cases, you need to report your crypto transactions to the CRA.

If you are not sure about how to report your crypto earnings in your tax files, here’s everything about declaring cryptocurrency to the CRA and how to calculate your crypto taxes in 2023.

When Is Crypto Transaction Taxable In Canada?

Your crypto transactions are considered taxable if you generate any form of profit or income from them. For instance, if you sell your crypto asset for the Canadian dollar at a higher price than at the time of purchase, the profit you make is subject to tax.

As per CRA, cryptocurrency is subject to two types of taxes: capital gains tax and business income tax. Whether the CRA will treat you as a business or an individual is decided on a case-by-case basis. 

Capital Gains Tax

If you are an individual investing or trading crypto casually, your profits are considered capital gains by the CRA. In this case, you only have to pay taxes on 50% of your profits. 

Business Income Tax

You may be considered as a business for taxes if you are:

  • Investing for commercial reasons and in a commercially viable way
  • Undertaking investment activities in a businesslike manner (e.g. preparing a business plan or acquiring capital assets)
  • Promoting a product or service
  • Intending to make a profit

Some common business examples include crypto day trading, mining, and staking. If your crypto gains are considered a business income, you are liable to pay taxes on 100% of your profits. 

GST/HST

When you use crypto to purchase any goods or services, it is considered a barter transaction. In this case, both the buyer and the seller are subject to GST/HST on the fair market value of the crypto during the sale. 

If you're running a crypto-related business, ensure you register for GST/HST and report these transactions in your tax returns.

How To Calculate Your Crypto Gains And Losses?

Before you declare your cryptocurrency to the CRA, you need to calculate your gains or losses for each crypto transaction. Here’s how you can do it:

  • Determine your adjusted cost base (ACB): It is the average cost of all the units of a specific crypto asset you own, including any fees or commissions. You can calculate the ACB by dividing the total cost of the crypto asset by the number of units.
  • Calculate your capital gain or loss: Subtract the ACB from the fair market value of the crypto during the time of sale to calculate your capital gain or loss.
  • Convert to Canadian dollars: Ensure that all your calculations are done in Canadian dollars to get accurate results.

How To Report Your Crypto Transactions?

Once you have calculated your gains or losses, it’s time to report them on your tax return. You can declare your cryptocurrency for taxes using:

  • Schedule 3 Form to report your capital gains and losses
  • Form T2125 to report your crypto business income 
  • Form T1135 if you are a Canadian resident holding crypto outside the country (if the total cost of your foreign property exceeds $100,000)

What Happens If You Don’t Report?

Not reporting your crypto transactions to the CRA is illegal and can have serious consequences. The CRA can track all your crypto earnings so make sure to report them accurately to avoid penalties and overtaxes.

If you are not sure how to calculate your crypto taxes, you can also use crypto tax software like Kryptoskatt to automatically track all your taxable transactions and calculate your taxes in a matter of minutes. 

How To Report NFTs For Taxes In Canada?

NFTs are considered crypto assets and must be reported for tax purposes in Canada. Just like any other crypto asset, you don’t have to pay taxes if you buy NFTs. 

Here’s when your NFTs are taxable:

  • Selling or trading NFTs that you have created is taxable. It is considered a business income and you will be taxed on 100% of your profits.
  • If you sell or trade an NFT that you have purchased from elsewhere, you are subject to taxes on 50% of your profits

Common Questions While Declaring Crypto To CRA

To help you report your cryptocurrency accurately, we have answered some of the most commonly asked questions.

How Does CRA Treat Losses?

The CRA allows Canadian taxpayers to claim their losses and use them to offset any crypto gains while reporting taxes. 

Is Gifting Cryptocurrency Taxable?

If the fair market value of the crypto is different at the time of gifting than when you first purchased it, the CRA considers it as disposal of your asset and is taxable.

The difference between the price at the time of disposal and at the time of purchase is the gain or loss that you incur. This needs to be reported to the CRA when filing taxes.

How CRA Treats Cryptocurrency Mining?

You don’t have to pay taxes when you receive crypto on mining but making any profit by disposing of your mined crypto is taxable. 

The income tax treatment for cryptocurrency mining varies depending on whether the mining activities are:

  • Personal activity of the miner (e.g. a hobby) which is 50% taxable
  • Business activity which is 100% taxable

To learn more about crypto trading taxation rules in Canada, refer to our blog here.

What If You Fail To Declare Cryptocurrency On Time?

You may be allowed to pay your taxes once the deadline is over but you will have to pay heavy penalties. You will end up overpaying taxes and the CRA may charge you interest on your unpaid taxes along with a penalty.

How Can Kryptoskatt Help You Calculate And Save Crypto Taxes?

Declaring your cryptocurrency for taxes can be complex. You need to keep a track of all your transactions for different crypto assets. These include their purchase prices and fair market values at the time of disposal, any fees or transactions, tax rates, and much more.

Any error in the calculations can lead to overtaxes or missing out on opportunities to claim deductions. To help you out, Kryptoskatt can automatically do all of this for you in just a few minutes. 

All you have to do is upload your wallet address and the platform auto-syncs all your transaction data and figures out your taxable transactions and possible deductions. Once done, you can also generate tax reports as defined by the CRA right from the app. To start calculating your crypto taxes, Sign Up Now for free.

FAQs:

How do I declare crypto in income tax?

To declare crypto in your income tax, you need to check if the transactions are treated as business income or capital gains. Use Schedule 3 Form to report your capital gains and losses and Form T2125 to report your crypto business income.

Does CRA monitor cryptocurrency?

The CRA is increasingly focused on monitoring cryptocurrency transactions to ensure tax compliance. They may use various methods to collect information about taxpayers' cryptocurrency holdings, including requesting data from exchanges, analyzing public blockchain data, or conducting audits.

Do Canadian crypto exchanges report to CRA?

Canadian crypto exchanges are subject to anti-money laundering (AML) and know-your-customer (KYC) regulations. While they may not automatically report your transactions to the CRA, they are required to maintain transaction records and could be compelled to share information with the CRA if requested.

Do I have to pay taxes on crypto in Canada?

Cryptocurrency transactions are subject to either income tax or capital gains tax, depending on the nature of the transaction.

Will Binance report to CRA?

Binance, being a non-Canadian exchange, does not have a direct reporting obligation to the CRA. However, the CRA can request information from foreign exchanges as part of international tax agreements or seek assistance from foreign tax authorities.

How do I avoid crypto taxes in Canada?

It is not advisable to attempt to avoid crypto taxes in Canada, as tax evasion is illegal and can lead to severe penalties, fines, and even imprisonment. Instead, focus on understanding your tax obligations and leverage tax deductions while filing taxes to the CRA.

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Declare Your Cryptocurrency to the CRA: Step-by-Step Guide for Canadians

By
Brihasi Dey
On

The CRA has clearly defined that cryptocurrency is subject to taxes. How you will be taxed depends on whether you are seen as an individual or a business and your income bracket. But in all cases, you need to report your crypto transactions to the CRA.

If you are not sure about how to report your crypto earnings in your tax files, here’s everything about declaring cryptocurrency to the CRA and how to calculate your crypto taxes in 2023.

When Is Crypto Transaction Taxable In Canada?

Your crypto transactions are considered taxable if you generate any form of profit or income from them. For instance, if you sell your crypto asset for the Canadian dollar at a higher price than at the time of purchase, the profit you make is subject to tax.

As per CRA, cryptocurrency is subject to two types of taxes: capital gains tax and business income tax. Whether the CRA will treat you as a business or an individual is decided on a case-by-case basis. 

Capital Gains Tax

If you are an individual investing or trading crypto casually, your profits are considered capital gains by the CRA. In this case, you only have to pay taxes on 50% of your profits. 

Business Income Tax

You may be considered as a business for taxes if you are:

  • Investing for commercial reasons and in a commercially viable way
  • Undertaking investment activities in a businesslike manner (e.g. preparing a business plan or acquiring capital assets)
  • Promoting a product or service
  • Intending to make a profit

Some common business examples include crypto day trading, mining, and staking. If your crypto gains are considered a business income, you are liable to pay taxes on 100% of your profits. 

GST/HST

When you use crypto to purchase any goods or services, it is considered a barter transaction. In this case, both the buyer and the seller are subject to GST/HST on the fair market value of the crypto during the sale. 

If you're running a crypto-related business, ensure you register for GST/HST and report these transactions in your tax returns.

How To Calculate Your Crypto Gains And Losses?

Before you declare your cryptocurrency to the CRA, you need to calculate your gains or losses for each crypto transaction. Here’s how you can do it:

  • Determine your adjusted cost base (ACB): It is the average cost of all the units of a specific crypto asset you own, including any fees or commissions. You can calculate the ACB by dividing the total cost of the crypto asset by the number of units.
  • Calculate your capital gain or loss: Subtract the ACB from the fair market value of the crypto during the time of sale to calculate your capital gain or loss.
  • Convert to Canadian dollars: Ensure that all your calculations are done in Canadian dollars to get accurate results.

How To Report Your Crypto Transactions?

Once you have calculated your gains or losses, it’s time to report them on your tax return. You can declare your cryptocurrency for taxes using:

  • Schedule 3 Form to report your capital gains and losses
  • Form T2125 to report your crypto business income 
  • Form T1135 if you are a Canadian resident holding crypto outside the country (if the total cost of your foreign property exceeds $100,000)

What Happens If You Don’t Report?

Not reporting your crypto transactions to the CRA is illegal and can have serious consequences. The CRA can track all your crypto earnings so make sure to report them accurately to avoid penalties and overtaxes.

If you are not sure how to calculate your crypto taxes, you can also use crypto tax software like Kryptoskatt to automatically track all your taxable transactions and calculate your taxes in a matter of minutes. 

How To Report NFTs For Taxes In Canada?

NFTs are considered crypto assets and must be reported for tax purposes in Canada. Just like any other crypto asset, you don’t have to pay taxes if you buy NFTs. 

Here’s when your NFTs are taxable:

  • Selling or trading NFTs that you have created is taxable. It is considered a business income and you will be taxed on 100% of your profits.
  • If you sell or trade an NFT that you have purchased from elsewhere, you are subject to taxes on 50% of your profits

Common Questions While Declaring Crypto To CRA

To help you report your cryptocurrency accurately, we have answered some of the most commonly asked questions.

How Does CRA Treat Losses?

The CRA allows Canadian taxpayers to claim their losses and use them to offset any crypto gains while reporting taxes. 

Is Gifting Cryptocurrency Taxable?

If the fair market value of the crypto is different at the time of gifting than when you first purchased it, the CRA considers it as disposal of your asset and is taxable.

The difference between the price at the time of disposal and at the time of purchase is the gain or loss that you incur. This needs to be reported to the CRA when filing taxes.

How CRA Treats Cryptocurrency Mining?

You don’t have to pay taxes when you receive crypto on mining but making any profit by disposing of your mined crypto is taxable. 

The income tax treatment for cryptocurrency mining varies depending on whether the mining activities are:

  • Personal activity of the miner (e.g. a hobby) which is 50% taxable
  • Business activity which is 100% taxable

To learn more about crypto trading taxation rules in Canada, refer to our blog here.

What If You Fail To Declare Cryptocurrency On Time?

You may be allowed to pay your taxes once the deadline is over but you will have to pay heavy penalties. You will end up overpaying taxes and the CRA may charge you interest on your unpaid taxes along with a penalty.

How Can Kryptoskatt Help You Calculate And Save Crypto Taxes?

Declaring your cryptocurrency for taxes can be complex. You need to keep a track of all your transactions for different crypto assets. These include their purchase prices and fair market values at the time of disposal, any fees or transactions, tax rates, and much more.

Any error in the calculations can lead to overtaxes or missing out on opportunities to claim deductions. To help you out, Kryptoskatt can automatically do all of this for you in just a few minutes. 

All you have to do is upload your wallet address and the platform auto-syncs all your transaction data and figures out your taxable transactions and possible deductions. Once done, you can also generate tax reports as defined by the CRA right from the app. To start calculating your crypto taxes, Sign Up Now for free.

FAQs:

How do I declare crypto in income tax?

To declare crypto in your income tax, you need to check if the transactions are treated as business income or capital gains. Use Schedule 3 Form to report your capital gains and losses and Form T2125 to report your crypto business income.

Does CRA monitor cryptocurrency?

The CRA is increasingly focused on monitoring cryptocurrency transactions to ensure tax compliance. They may use various methods to collect information about taxpayers' cryptocurrency holdings, including requesting data from exchanges, analyzing public blockchain data, or conducting audits.

Do Canadian crypto exchanges report to CRA?

Canadian crypto exchanges are subject to anti-money laundering (AML) and know-your-customer (KYC) regulations. While they may not automatically report your transactions to the CRA, they are required to maintain transaction records and could be compelled to share information with the CRA if requested.

Do I have to pay taxes on crypto in Canada?

Cryptocurrency transactions are subject to either income tax or capital gains tax, depending on the nature of the transaction.

Will Binance report to CRA?

Binance, being a non-Canadian exchange, does not have a direct reporting obligation to the CRA. However, the CRA can request information from foreign exchanges as part of international tax agreements or seek assistance from foreign tax authorities.

How do I avoid crypto taxes in Canada?

It is not advisable to attempt to avoid crypto taxes in Canada, as tax evasion is illegal and can lead to severe penalties, fines, and even imprisonment. Instead, focus on understanding your tax obligations and leverage tax deductions while filing taxes to the CRA.

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