Is crypto taxable in Canada?

Yes. The Canada Revenue Agency (CRA) is clear that crypto is subject to Income Tax. You’ll pay Income Tax on half of any crypto gains from dispositions of crypto, as well as Income Tax on any additional income from crypto – like staking or being paid in crypto.

How much tax do you pay on crypto in Canada?

The amount of tax you’ll pay on crypto depends on the kind of transaction (income or capital gain), and how much you earn. For transactions viewed as income, you’ll pay Income Tax at your usual Federal and Provincial tax rate. For transactions viewed as capital gains, you’ll pay Income Tax at your normal Federal and Provincial tax rate on half of any gain.

You won’t pay tax on crypto when you’re:

• Buying crypto with fiat currency.
• HODLing crypto.
• Moving crypto between your own wallets.
• Being gifted crypto.
• Creating a DAO (Decentralized autonomous organization).

Can the CRA track crypto?

Yes. The Canada Revenue Agency can track your crypto investments.

The CRA & cryptocurrency tax

Cryptocurrency isn’t seen like a fiat currency in Canada. Instead, it’s viewed as a commodity, which is a capital property – like a stock or a rental property.

How is crypto taxed in Canada?

Cryptocurrency is viewed as a commodity by the CRA. This means it’s either subject to Income Tax or Capital Gains Tax.

If your crypto is taxed as income – you’ll pay Income Tax on the entire proceeds of a crypto transaction. If your crypto is taxed as a capital gain, you’ll only pay Capital Gains Tax on half of any profits of a crypto transaction.

So how do you know whether your crypto will be taxed as income or a capital gain? It all comes down to whether your investment is seen as business income or a capital gain.Let’s break it down.

Business Income or Capital Gain

The CRA states that they decide on whether you have business income or capital gains on a case by case basis. They also state that an individual transaction may be considered business income, while other transactions by the same investor may be considered a capital gain. All this to say, it’s not too clear what precisely the CRA consider business income.

They do have some guidance on this. The CRA states the following arecommon signs that you may have business income:

• You conduct crypto activity for commercial reasons.
• You promote a product or service.
• You show that you intend to make a profit.
• Your crypto activities are regular or repetitive.

With the above in mind – many Canadian crypto investors could be considered to be making business income as opposed to a capital gain. Their own example of business income is of a crypto investor who buys and sells crypto on a regular basis and makes a profit of $40,000 through active trading of cryptocurrency.

Crypto mining tax Canada

The CRA guidance on crypto mining tax all revolves around the scale and intentions of your crypto mining activities. If you’re seen to be acting as an individual, you’ll only pay Capital Gains Tax when you dispose of mined crypto. If your mining is more akin to business income, you’ll pay Income Tax instead.

Crypto Tax Canada: Ultimate Guide

Not sure how crypto is taxed in Canada or want to know how much tax you’ll pay on crypto? The Canada Revenue Agencyhas released guidance on cryptocurrency taxes in Canada – but they’re not always clear. Our Canada Crypto Tax Guide covers everything you need to know including crypto capital gains, crypto income, how to calculate your crypto taxes, how to report your crypto to the CRA and even how to help you reduce your tax bill ahead of the April 30 tax deadline – let’s go!

Is crypto taxable in Canada?

Yes. The Canada Revenue Agency (CRA) is clear that crypto is subject to Income Tax. You’ll pay Income Tax on half of any crypto gains from dispositions of crypto, as well as Income Tax on any additional income from crypto – like staking or being paid in crypto.

How much tax do you pay on crypto in Canada?

The amount of tax you’ll pay on crypto depends on the kind of transaction (income or capital gain), and how much you earn. For transactions viewed as income, you’ll pay Income Tax at your usual Federal and Provincial tax rate. For transactions viewed as capital gains, you’ll pay Income Tax at your normal Federal and Provincial tax rate on half of any gain.

This guide is regularly updated

One quick thing before we jump into it – the rules on crypto tax in Canada are in constant flux. At Koinly, we keep a very close eye on the CRA’s crypto policies and regularly update this guide to keep you informed and tax compliant.

13 September 2022: Updated ahead of the EOFY – optimize your tax position now!

21 February 2022: Tax-filing season is open. Deadline is 2 May (as 30 April falls on weekend).

14 February 2022: Updated with additional guidance for NFTs, DAOs and Income Tax rates for 2022.

19 January 2022: Updated to include the newly released Schedule 3 for the 2021 financial year.

7 December 2021: New year, new guide for 2022!

1 April 2021: Koinly now connects to crypto exchange Coinsquare.

25 March 2021: Coinsquare ordered to release customer records to CRA. 

10 November 2020: CRA announces 2021 filing deadline as 30 April 2021.

5 March 2019: Welcome to your Canada cryptocurrency tax guide!

Is any crypto tax free in Canada?

Let’s start with the good news… there are some specific crypto transactions that are tax free in Canada.

You won’t pay tax on crypto when you’re:

• Buying crypto with fiat currency.
• HODLing crypto.
• Moving crypto between your own wallets.
• Being gifted crypto.
• Creating a DAO (Decentralized autonomous organization).

Can the CRA track crypto?

Yes. The Canada Revenue Agency can track your crypto investments.So if you’re thinking you just won’t declare your crypto income or gains… think again. In fact, we have a whole article on the penalties you’ll face for crypto tax evasion in Canada.

The CRA announced they’re working with crypto exchanges to share customer information. They’re using this information to track Canadian crypto investors to ensure they’re reporting their crypto investments accurately and paying their fair share of crypto tax.

As of January 1 2022, all money services businesses in Canada have to notify the CRA of transactions greater than $10,000. So if you send $10,000 to a crypto exchange, it will be reported to the CRA.

The CRA is also registered with FINTRAC (Financial Transactions and Reports Analysis Centre of Canada) which regulates financial institutions and investigates money laundering and tax evasion. Reported trades are not necessarily restricted to those above $10,000. If a crypto exchange is registered with FINTRAC in Canada, they are required to obtain a copy of your government-issued ID and proof of address. Your ID is therefore linked to your account and wallet addresses on the exchange.

The CRA hasn’t stated precisely which crypto exchanges they’re working with other than Coinsquare. This doesn’t mean Coinsquare is the only crypto exchange sharing information with the CRA by any means. In fact, the vast majority of large crypto exchanges operating in Canada like Coinbase, CoinSmart, Crypto.com and others are likely to have had the same data request from the CRA. 

In other words, the best way to remain tax compliant is to calculate report your crypto taxes accurately. Let’s learn how.

The CRA & cryptocurrency tax

Cryptocurrency isn’t seen like a fiat currency in Canada. Instead, it’s viewed as a commodity, which is a capital property – like a stock or a rental property.

Why do you need to know if it’s classed as a capital asset from a tax perspective? Because this explainshow cryptocurrency is taxed in Canada.

How is crypto taxed in Canada?

Cryptocurrency is viewed as a commodity by the CRA. This means it’s either subject to Income Tax or Capital Gains Tax.

If your crypto is taxed as income – you’ll pay Income Tax on the entire proceeds of a crypto transaction. If your crypto is taxed as a capital gain, you’ll only pay Capital Gains Tax on half of any profits of a crypto transaction.

So how do you know whether your crypto will be taxed as income or a capital gain? It all comes down to whether your investment is seen as business income or a capital gain.Let’s break it down.

Business Income or Capital Gain

The CRA states that they decide on whether you have business income or capital gains on a case by case basis. They also state that an individual transaction may be considered business income, while other transactions by the same investor may be considered a capital gain. All this to say, it’s not too clear what precisely the CRA consider business income.

They do have some guidance on this. The CRA states the following arecommon signs that you may have business income:

• You conduct crypto activity for commercial reasons.
• You promote a product or service.
• You show that you intend to make a profit.
• Your crypto activities are regular or repetitive.

With the above in mind – many Canadian crypto investors could be considered to be making business income as opposed to a capital gain. Their own example of business income is of a crypto investor who buys and sells crypto on a regular basis and makes a profit of $40,000 through active trading of cryptocurrency.

The more active you are in crypto trading and the more profit you make increases the likelihood of your crypto profits being considered business income as opposed to capital gains. You should speak to an experienced crypto tax accountant for bespoke advice on your investments and their subsequent taxation, but we can look at the general rules on how business income and capital gains from crypto are taxed in Canada.

Crypto Capital Gains Canada

Because cryptocurrency is viewed as a capital asset, when you dispose of it by selling it, swapping it, spending it or gifting it – you’ll owe Capital Gains Tax on any profit you make. Crypto transactions which are considered a disposition in Canada include:

• Selling crypto for CAD.
• Swapping crypto for another crypto.
• Spending crypto on goods or services.
• Gifting crypto.

You won’t pay Capital Gains Tax on the entire proceeds when you sell, swap, spend or gift your crypto – only the profits from it. This is also known as a capital gain. 

The news keeps on getting better because you’ll only pay Capital Gains Tax on half your net capital gain each financial year in Canada.

Crypto Capital Gains Tax Rate Canada

Canada doesn’t have a specific Capital Gains Tax rate and there is no short-term Capital Gains Tax rate or long-term Capital Gains Tax rate. Instead, your crypto capital gains are taxed at the same rate as yourFederal Income Tax rate and Provincial Income Tax rate. But remember – you’ll only pay tax on half your capital gain. You can see the Federal Income Tax rates for the 2021 and 2022 tax years below:

Want to see the Provincial Income Tax Rates for Canada? See our Canada Crypto Tax Rates Guide 

Crypto capital losses

You won’t pay any Capital Gains Tax on any capital losses from crypto. But don’t just write these off as a bad time – utilize them to reduce your tax bill.

You can offset your capital losses against your capital gains for the tax year to reduce your overall tax bill. 

The 50% rule for capital gains equally applies to your capital losses. This means you can only offset half your net capital loss in a given tax year. If you’ve done this and you still have more losses, you may carry this figure forward to future financial years to offset against future gains. Similarly, if you have no capital gains in a year, you can carry forward half your capital losses to offset against future gains.

Tax on lost or stolen crypto

The CRA has not released specific guidance stating whether you can claim lost or stolen crypto as a capital loss.

But, they do allow taxpayers to deduct capital losses due to theft of other capital property.  As crypto is considered to be capital property under Canadian law – you may be able to make a claim for a capital loss for stolen crypto. Find out more in our lost & stolen crypto Canada guide.

How to calculate gains on crypto Canada

You’ll have a crypto capital gain or loss any time you sell, swap, spend or gift your crypto – so you need to know how to calculate crypto gains.

A capital gain or loss is the difference in value from when you bought or otherwise acquired your crypto to when you disposed of it by selling it, swapping it, spending it or gifting it. If you’ve made a profit from the difference in value – you’ll have a capital gain. If you’ve made a loss from the difference in value – you’ll have a capital loss.

Calculating your crypto gains is pretty straightforward. First, you need to figure out your cost basis. Your cost basis is how much it cost you to buy your crypto asset, plus any transaction fees. Canada uses the adjusted cost basis method. This allows you to amend your cost basis to reflect how much a given capital asset actually cost you. So you can add in fees related to selling your crypto and purchasing crypto. This could include exchange fees and gas fees for making the transaction on a network.

However, if you acquired crypto for free – for example, through an airdrop or a gift – the adjusted cost basis method will also reflect that it cost you nothing to acquire your crypto – so your entire proceeds would be profit and subject to Capital Gains Tax.

Once you know your cost basis – simply subtract your cost basis from the price you sold your crypto for to identify whether you have a capital gain or loss. If you didn’t sell your crypto – for example, if you spent it, gifted it or swapped it – then subtract your cost basis from the fair market value of the crypto in CAD on the day you disposed of it.

Example

You live in Vancouver, B.C.

You earn $60,000 in taxable income after you deduct your personal allowance. You made a capital gain of $15,000.

You only need to pay tax on half your capital gains, leaving $7,500.

Your Federal Tax Rate is 20.5%. Your B.C. Provincial Tax Rate is 7.7%.

20.5% + 7.7% = 28.2%. This is your crypto tax rate for capital gains.

28.2% of $7,500 = $2,115. This is how much you’ll pay in Capital Gains Tax on your crypto.

Canada cost basis method

Canada uses the adjusted cost basis method when calculating crypto capital gains and losses. This means you need to track the costs involved in acquiring your crypto assets carefully. If you have multiple identical assets, the CRA says to use the average cost basis method.

The Superficial Loss Rule

To prevent wash sales, the CRA has the superficial loss rule. It kicks in when both these conditions are met:

• The taxpayer (or someone acting on their behalf) acquires cryptocurrency that is identical to the one that they dispose of, either 30 days before or after the disposition, and
• At the end of that period, the taxpayer or a person affiliated with the taxpayer owns or had a right to acquire the identical property.

What all this means is if you sell and buy assets of a similar kind within a 30 day period – you can’t offset these capital losses against your capital gains.

Good to know

Please note if you’re a newcomer to Canada – there’s a specific rule about how to value your property (including crypto) that you acquired before arriving in Canada. 

If you owned certain properties – like shares or other capital assets excluding taxable Canadian properties – at the time you immigrated to Canada, the CRA considers you to have sold the properties and to have immediately reacquired them at a cost equal to the fair market value on the date you became a Canadian resident. This is what’s known as a deemed disposition.

In other words, you’ll need to adjust your cost basis for all your crypto to the fair market value in CAD on the day you became a resident of Canada. You’ll need to keep these records to ensure you can calculate your gain or loss correctly if you later dispose of your crypto.

Crypto tax breaks

Canada has a few tax breaks that crypto investors will be interested in.

1. Only half your crypto gains are taxed: You’ll only pay Capital Gains Tax on half your capital gains. You can calculate this in a couple of different ways, but the easiest way is to add up all your capital gains and then halve the amount. That’s how much you’ll pay tax on.
2. Personal tax allowance: the first $14,398 you make in income is tax free in Canada for the 2022 financial year.
3. Spousal Tax Credit: If you don’t use up your personal tax allowance (Basic Personal Amount) mentioned above, then you can transfer it to your partner – provided you’re married or in a common law partnership. For example, if you earn $60,000 a year and your partner earns $10,000 a year, you’d be able to claim the difference between your partner’s income and the BPA – in this example, $4,398. Learn more about filing Canadian crypto taxes as a married couple from us.

Please note when filing your taxes via CRA (or through TurboTax etc.) you shouldn’t try and factor in these breaks yourself. The CRA want to see your totals across all asset classes and then they will work out any applicable discounts on your behalf.

Crypto Income Tax

Now we’ve covered capital gains and Capital Gains Tax, let’s look at crypto Income Tax.

There are many crypto transactions that could be considered income by the CRA – including disposing of your crypto if you’re trading regularly and at scale. One of the simplest ways to think about it is anytime you’re seen to be ‘earning’ crypto – this could be seen as business income and subject to Income Tax instead. Examples of crypto transactions that could be considered income include:

• Getting paid in crypto.
• Mining crypto.
• Staking rewards.
• Referral bonuses.
• Selling an NFT you’ve created.

Remember if you’re selling and swapping crypto at scale – like a day trader – then your profits could be considered business income, not capital gains.

As well as the above, DeFi has brought many new ways for crypto investors to make money. The CRA is pretty behind the curve when it comes to the tax treatment of crypto in Canada, but we can safely assume that based on their business income guidance, most DeFi transactions would be considered business income as you’re conducting transactions for a commercial reason. Examples of DeFi transactions that would be viewed as income and subject to Income Tax include:

• Earning interest through yield farming on lending protocol like AAVE, Maker or Compound.
• Earning new liquidity pool tokens, governance tokens or reward tokens on protocols like Uniswap.
• Lending your crypto to platforms like NEXO to earn interest.
• Earn crypto dividends on platforms like CoinRabbit.

There are also many play-to-earn platforms and other similar engage-to-earn platforms that have sprung up in the crypto space in recent years. The rewards you receive from these could also be considered business income and subject to Income Tax. Examples include:

• Referral rewards like Binance Referral.
• Learn to earn campaigns, like Coinbase Learning Center or CoinMarketCap Learning Center.
• Watch to earn platforms like Odysee.
• Browse to earn platforms like Permission.io browser extension or Brave.
• Play to earn games like Axie Infinity.
• Shop to earn through browser extensions like Lolli.
• Share public address to earn on platforms like Moon Faucet.

As we said above, the CRA hasn’t released specific guidance on most crypto transactions beyond basic dispositions just yet. However, as their guidance for what is considered business income includes conducting activities for commercial reasons – it is quite likely all DeFi transactions would be considered business income and subject to Income Tax. Of course, it is advisable to speak to an experienced tax advisor for your investments.

How to calculate crypto Income Tax

Unlike crypto capital gains where only half your profits are subject to Capital Gains Tax, the same isn’t true for crypto income. When it comes to Income Tax, you’ll take the fair market value of the crypto in CAD on the day you received it and apply your Federal and Provincial Income Tax rates to the entire amount to calculate how much Income Tax you’ll pay.

You can find your Federal and Provincial Income Tax rates in the tables above. Let’s look at an example.

Example

You live in Vancouver, British Columbia.

You earn $60,000 in taxable income from your job – you’ve already deducted your personal allowance. You also earn $10,000 in crypto income. 

This puts you in the 20.5% Federal Tax Rate band for your crypto earnings.

Your Provincial Tax Rate band is 7.7%. 

20.5% + 7.7% = 28.2%. This is your crypto tax rate.

28.2% of $10,000 is $2820. This is what you’ll pay in Income Tax on your crypto.

With the foundations out the way… let’s take a look at a variety of transactions and the kind of tax that would apply.

Do you pay tax when you buy crypto in Canada?

No, provided you’re buying with fiat currency. Let’s break it down.

Buying crypto with CAD

You’re not taxed when you buy crypto with fiat currency – like Canadian Dollars.

This said, even though you don’t pay tax, it’s still really important you keep good records of your crypto transactions so you can keep a detailed account of your cost basis. This lets you calculate accurate crypto gains and losses when you later dispose of your crypto.

TAX FREE

Buy and HODL crypto

Waiting for the moon? Great news, you’ll pay no tax to do so. Even if the value of your crypto increases – you’ll pay no tax until you realize that gain by selling, spending, swapping or gifting your crypto. 

TAX FREE

Buying crypto with crypto

Buying crypto with another crypto is subject to Capital Gains Tax. The CRA view this as a disposition – you’re getting rid of one asset. It doesn’t matter that you’re using it to buy another – you’ve still disposed of your asset. 

Let’s say you bought BTC with ETH. The CRA aren’t interested in you buying ETH, they’re interested in you selling Bitcoin. You need to calculate whether you have a capital gain or loss from your disposition of BTC. To do this, you’d use the cost base of your BTC from the day you bought/acquired it and subtract it from the fair market value of BTC in CAD on the day you swapped it for ETH. 

You do however need to keep track of how much you purchased your ETH for so you know your cost basis if you later sell, trade, spend or gift your ETH.

CAPITAL GAINS TAX

Buying crypto with stablecoins

Stablecoins are treated like any other cryptocurrency by the CRA – so if you’re using stablecoins to buy other cryptocurrencies, any capital gain you make is subject to Capital Gains Tax.

Of course, because stablecoins are often pegged to a fiat currency, the price will remain relatively stable. So you’re unlikely to have an actual capital gain or loss from disposing of stablecoins as there will be no difference in value from when you bought the coins to when you disposed of them.

Despite this, you’ll still need to keep records of these dispositions for the CRA.

CAPITAL GAINS TAX

Do you pay tax when you sell cryptocurrency in Canada?

Yes – you’ll pay tax whenever you sell Bitcoin or any other crypto in Canada. The amount you pay will vary based on your regular income. 

Selling crypto for CAD

Selling crypto for fiat currency like Canadian Dollars is a disposition of an asset from a tax perspective. This makes it subject to Capital Gains Tax.

You’ll only pay tax on half your capital gain or profit. The tax rate you’ll pay depends on your regular income. 

Example

Devin buys 1 ETH in June 2021. The price of ETH the day he buys it is $2,500 and he pays a $25 fee. He can adjust his cost basis to include the fee – giving him a cost basis of $2,525. 

He sells his 1 ETH in November 2021 for $5,000. He needs to figure out his capital gain by subtracting his cost basis from his sale price.

$5,000 – $2,525 = $2475. This is his capital gain, he needs to pay Capital Gains Tax on this amount.

Devin earns $80,000 a year from his job. This puts him in the 20.5% Federal Income Tax bracket. He lives in Ontario and his earnings put him in the 9.15% Provincial Income Tax 

20.5% + 9.15% = 29.65%

Remember, Devin only pays tax on half his capital gain of $2475, so he can halve the amount to $1237.5

29.65% of $1237 = $366.9. This is how much he’ll pay in Capital Gains Tax.

CAPITAL GAINS TAX

Selling crypto for crypto

It doesn’t matter what you’re selling your crypto for – either way the CRA view it as a disposition from a tax perspective. You’re still getting rid of one asset, even if you’re replacing it with another. So selling crypto for crypto is subject to Capital Gains Tax.

To calculate your capital gain or loss, subtract the cost basis of the asset you disposed of from the fair market value of the asset on the day you traded it in CAD.

CAPITAL GAINS TAX

Do you pay tax when transferring crypto?

No, you won’t pay tax on your crypto when you’re transferring it between your own wallets or exchanges you use. 

However, transfer fees and transferring crypto in and out of liquidity pools is a little more confusing from a tax perspective 

Moving crypto between wallets

Transferring your crypto from one wallet to another isn’t seen as a disposition by the CRA. You still own the asset – so it’s tax free.

You still need to keep records of these transactions in case the CRA ever wishes to audit your crypto assets.

TAX FREE

Transfer fees

Most exchanges will charge you a transfer fee to move your crypto. If you pay this transfer fee in CAD or another fiat currency – this is tax free.

But most of the time, you’ll pay these transfer fees in crypto. Spending crypto is a disposition, so it’s a taxable event and subject to Capital Gains Tax.

This means if the price of your asset has increased since you bought it, when you then spend crypto to transfer it – you’ll have a capital gain.

The CRA doesn’t have guidance on whether transfer fees are an allowable cost – so we don’t know if you can add them to your cost basis under the adjusted cost basis rules. But it’s unlikely that the transfer fees are tax deductible.

Example

You bought 1 ETH. The price of 1 ETH when you bought it is $4,385.

You decide you want to move your ETH from your Binance wallet to your MetaMask wallet. You’re charged a flat fee of 0.005 ETH to do so.

You’re paying in ETH – so you’re disposing of your cryptocurrency. So you need to calculate your cost basis and the fair market value of your crypto at the point of disposition. To keep it simple, let’s say the price of ETH hasn’t changed since you bought it.

0.005 ETH = $21.90. This is your disposition – you need to report this to the CRA as a disposition, regardless of the fact you have no capital gain or loss. Of course, doing this for every transaction can be time-consuming, but Koinly can help you do this with our “treat transfer fees as disposals” setting.

POTENTIAL CAPITAL GAINS TAX

Adding and removing liquidity

If you’re investing in DeFi protocols – the vast majority of these protocols use liquidity pools. On the surface, we can liken this to transferring your asset to another wallet or exchange. You’re not disposing of the asset and you can take the original asset back at any point.

In some instances, this will be true. But many DeFi protocols now give investors a token that represents their share in the liquidity pool – so you’re swapping your crypto for another asset. Crypto-to-crypto swaps are a taxable event as you’re disposing of one asset for another – even if you then get that asset back later, you’re still swapping a token for it. This could be subject to Capital Gains Tax.

If the CRA do think of moving liquidity as a disposition where LP tokens are involved – then it’s likely that any gas fees you pay as a result would be deductible as they can be thought of as transaction fees related to a buy or sell.

It’s important to note the CRA hasn’t given any guidance on this yet – so you should speak to an experienced crypto accountant who can advise you on these transactions.

POTENTIAL CAPITAL GAINS TAX

How are airdrops and forks taxed in Canada?

The CRA has no specific guidance on how airdrops and forks are taxed in Canada – but we can infer their tax treatment from their guidance on what is considered business income. Forks and airdrops are unlikely to be taxed as income on receipt, but you will pay Capital Gains Tax when you later sell coins or tokens you received from an airdrop or hard fork.

Receiving an airdrop

The Canada Revenue Agency is unlikely to view airdrops as a type of income, as long as you’re seen to be trading as an individual and not as a business.

However, you will pay tax when you later spend, swap, gift or sell coins or tokens received from an airdrop.

TAX FREE

Selling or swapping coins from an airdrop

Crypto you received from an airdrop will be treated the same as any other crypto when you later spend, swap, gift or sell it. So you’ll pay Capital Gains Tax when you dispose of this crypto.

It’s important to note that because CRA uses the adjusted cost basis method, you’ll pay Capital Gains Tax on the entire proceeds as all of your proceeds will be seen as profit. Your cost basis is zero, so your entire proceeds are considered a capital gain.

Example

You receive 200 1INCH tokens from an airdrop. The FMV of the token that day is $3. Your tokens are not subject to Income Tax as you’re not trading as a business.

You paid nothing for the asset, so your cost basis is $0. 

You sell your 1INCH tokens two months later for $4, so you made a total of $800. To calculate your capital gains, subtract your cost basis from the sale price. 

$800 – $0 = $800. You report a capital gain of $800.

CAPITAL GAINS TAX

Forks

The CRA hasn’t issued specific guidance on how hard forks are taxed, but they’re very clear that the way your crypto is taxed is dependent on how they view you as a taxpayer.

So for individual investors, it’s likely you wouldn’t pay any tax when you receive coins from a hard fork. But you will pay Capital Gains Tax on your crypto assets at the point you dispose of them by selling, swapping, spending or gifting them.

Like above, because Canada uses the adjusted cost basis method, the cost basis for any new coins received as a result of a fork would be zero as you didn’t pay anything for them. This means when you later dispose of this asset, you’d pay Capital Gains Tax on the total value of the tokens sold because the entire sales proceeds would be considered profit. 

CAPITAL GAINS TAX

Crypto gifts and donations tax

Gifting crypto in Canada is seen as a disposition of an asset and it’s subject to Capital Gains Tax. Meanwhile, donations of crypto in Canada has complicated tax implications.

Gifting crypto

When you give a crypto as a gift in Canada, you’ll pay Capital Gains Tax on any profit. This is seen as a disposition of an asset by the CRA.

The recipient of the gift uses the FMV of the asset the day they received it as their cost basis should they later wish to sell it. Remember, you’ll only pay Capital Gains Tax on half of any capital gain.

Example

You bought 10 Moonriver tokens at a FMV of $100 per token. You then gift all of these to your friend when the fair market value (FMV) of those tokens is $500. 

As your gift is viewed as a disposition, Capital Gains Tax applies. The sale proceeds are $5,000 ($500 x 10) and the base cost is $1,000 ($100 x 10). 

$5000 – $1,000 = $4,000. You report a capital gain of $4,000. 

The gift recipient will be liable for capital gains tax when they dispose of the assets. Their base cost will be the FMV at the date they received the tokens – $500 per token.

CAPITAL GAINS TAX

Donating crypto to charity

Want to spread the love? Donating crypto to a registered charity is a great way to do it – but it has complicated tax implications for both the recipient and the donator. 

Because crypto is considered a commodity by the CRA and not cash – donation of crypto don’t follow the same rules as cash donations. So when you donate crypto, the CRA views this as a disposition of an asset and it has tax consequences. If your crypto has increased in value from acquisition to the time you donate, you’ll be liable for Capital Gains Tax on that donation. 

Donating crypto to a registered charity is considered a Gift in Kind donation. This means it’s subject to the deemed fair market value rule. So upon donation, you’ll need to tell the charity when you acquired your crypto asset. If you received and donated it within three years of the acquisition date, the charity may only issue a tax receipt for the obtained value.

EXAMPLE

You buy 1 ETH in December 2020 for $600. You then donate this ETH to a registered charity in December 2021 when the fair market value of ETH is $4,000. 

According to the CRA, the charity you donate to can only issue a $600 receipt for your donation and your donation is a disposition. You’ll need to pay Capital Gains Tax on the difference in value, so $3,600. 

If the charity issued a receipt for the for the current value of $4,000, this could be invalidated during an audit.

CAPITAL GAINS TAX

Crypto mining tax Canada

The CRA guidance on crypto mining tax all revolves around the scale and intentions of your crypto mining activities. If you’re seen to be acting as an individual, you’ll only pay Capital Gains Tax when you dispose of mined crypto. If your mining is more akin to business income, you’ll pay Income Tax instead.

Mining as a hobby

If the CRA views your crypto mining activities as a hobby – you won’t pay Income Tax when you receive mined coins. You will however pay Capital Gains Tax when you later dispose of mined coins by selling, swapping, spending or gifting them. 

Because the cost basis of mined coins is zero – all proceeds from a disposition are considered a capital gain.

CAPITAL GAINS TAX

Mining as a business

If you’re in the business of mining, the cryptocurrency you hold is considered as inventory and you need to use one of the two methods to value it:

1. Valuing each item at either its acquisition cost or its fair market value at the end of the year, whichever is lower.

2. Valuing the entire inventory at its fair market value at the end of the year (the price you would have to pay to replace an item or the amount you would receive if you sold an item).

You can use either the cost or the fair market value to value your inventory, whichever is lower. In fact, you can use the lower value for each specific cryptocurrency you have which makes tax planning even better. Here cost refers to “cost at which the taxpayer acquired the property” along with all reasonable costs incurred to buy the property. You also need to be consistent and use the same method to value your property, year-on-year.

It’s also important to remember, of course, that the income from selling mined cryptocurrency will become part of your business income and be taxed accordingly. Costs associated with mining (like electricity, equipment etc.)would have to be calculated on a per coin basis and then deducted against the sales proceeds.

INCOME TAX

Crypto staking Canada

Some cryptocurrencies don’t use proof-of-work (mining) and instead use proof-of-stake (PoS). Examples of this include Ethereum, Polkadot, Solana, Avalanche and Cardano. In a PoS consensus mechanism, you stake your crypto to earn a reward. 

Staking in this context serves a similar function to mining – a network participant gets selected to add the latest batch of transactions to the blockchain and earn crypto in exchange. The network chooses validators based on the size of their stake and the length of time they’ve held it – so the most invested participants are rewarded.

Staking through PoS helps secure the blockchain – by staking you are part of the process of creating new tokens. This is different to other forms of staking such as DeFi lending, where you effectively lend your crypto through a protocol (such as AAVE) and receive interest in the form of crypto from borrowers on the other side of the transaction. 

But staking as part of a PoS blockchain comes with tax implications.

Staking rewards

Because you are ‘earning’ crypto through the staking process, it is likely that the CRA will view any PoS earnings as chargeable to Income Tax. The taxable amount will be the FMV of the tokens earned through staking on the date they are received. 

INCOME TAX

Selling or trading staking rewards

You will also pay Capital Gains Tax when you later dispose of the tokens earned from staking if you sell, swap, spend or gift them. The base cost will be the FMV on the date you received the tokens. Meanwhile, the disposition price will be the FMV on the day you sell, swap, spend or gift the tokens. 

CAPITAL GAINS TAX

Crypto margin trading, derivatives and other CFDs

The tax treatment of crypto margin trading, derivatives products like Bitcoin futures and other CFDs all depends on whether you’re seen to be acting as a day trader or an individual investor. So it will all depend on the scale at which you’re trading – but let’s look at both scenarios and the taxation.

Trading as an individual investor

If you’re seen to be trading as an private investor – you’ll pay Capital Gains Tax on profits from margin trades, derivatives and other CFDs. So when you open a position, you won’t pay tax. It’s only when you close your position that you’ll realize a capital gain or loss and pay Capital Gains Tax on any profits.

Margin fees are deductible provided they relate to your crypto trading.

In the instance of liquidation – when your collateral is sold – this is a disposition from a tax perspective.

CAPITAL GAINS TAX

Trading as a day trader

Meanwhile, if you’re seen to be trading at the same scale and frequency as a day trader – you’ll pay Income Tax on 100% of the profits from your trades. Like above, you won’t pay tax when you open a position in a margin trade, derivative or another CFD – you’ll pay tax at the point you close the sale. 

Unlike with capital gains, where only half your gain is taxed – you’ll pay tax on 100% of your profits at your current tax rate.

DeFi taxes Canada

The CRA is behind the curve when it comes to crypto tax in general so we’ll preface this by saying there is no clear guidance from the CRA about DeFi tax in Canada.

This doesn’t mean you won’t pay tax on DeFi investments – it just means you need to look at the current crypto tax rules in Canada and infer the likely tax treatment of DeFi investments. As we already know from this guide, the tax treatment of crypto in Canada all boils down to whether it’s seen as business income or a capital gain. You’ll have business income anytime you’re intending to make a profit or if you have regular and repetitive activities. That’s going to be the case for the majority of DeFi investors which means it’s likely a lot of your DeFi investments are going to be taxed as income, not as a capital gain.

Anytime you’re ‘earning’ crypto – like business income – this is likely to be subject to Income Tax. Meanwhile, anytime you’re disposing of crypto – this is likely to be subject to Capital Gains Tax. It is advisable to speak to an experienced tax accountant about your specific DeFi investments. This said, from the current rules, we can infer DeFi would likely be taxed as the following:

• Earning interest from DeFi protocols: Income Tax.
• Borrowing from DeFi protocols:  No tax (unless you receive an LP token in return for your staked crypto, in which case Capital Gains Tax).
• Paying interest in DeFi protocols: Capital Gains Tax – but potentially tax deductible. If you’re borrowing and using this to buy an asset (which only generates capital gains), then the interest cost is not deductible.  However, if you’re using this loan to ‘buy’ income (like buying stocks which generate dividends or invest in another DeFi platform which generates rewards) then the interest paid can be deductible against that income. 
• Selling or swapping NFTs: Income Tax if you created the NFT, Capital Gains Tax if you are selling an NFT you previously purchased. 
• Buying NFTs: Capital Gains Tax if you’re buying with crypto, tax free if you buy with fiat currency.
• Staking on DeFi protocols: Income Tax.
• Yield farming DeFi protocols: Income Tax.
• Earning liquidity tokens from DeFi protocols: Income Tax.
• Adding liquidity to liquidity pools: Capital Gains Tax if you receive a token in exchange for your liquidity.
• Removing liquidity from liquidity pools: Capital Gains Tax if you exchange a token to remove your liquidity.
• Earning through play/engage to earn DeFi protocols: Income Tax.
• Profits from DeFi margin trading and options protocols: Capital Gains Tax provided you’re not a day trader.

DeFi trading as an individual

As we already said, the tax treatment of your DeFi investments is all going to come down to whether the CRA views you as an individual investor or sees your crypto investments as more akin to business income. They decide this on a case-by-case basis – but if you’re seen to be trading as an individual, you’ll pay Capital Gains Tax on any profits, not Income Tax.

CAPITAL GAINS TAX

DeFi business income

If your DeFi transactions are regular, repetitive, intending to make a profit or of a commercial nature, you’ll pay Income Tax on the entirety of your profits from DeFi investments instead of Capital Gains Tax on half. The CRA decides what is deemed to be business income or capital gains on a case by case basis so you should speak to a tax advisor for further advice on how your investments may be viewed.

INCOME TAX

NFT taxes Canada

NFTs are another area of crypto which have exploded in the past year. Whilst the CRA hasn’t issued any specific guidance on NFTs taxes, it’s reasonable to conclude that these are considered to be digital assets in the same way other cryptocurrencies are, therefore they will also be considered capital property under Canadian law. This means NFTs will be subject to the same tax rules as other crypto assets.

The tax treatment of the NFT will depend on how you interact with them. Simply minting or buying an NFT is not a taxable event. 

Creating and selling NFTs

Creating and selling an NFT is akin to creating and selling any other product, and therefore qualifies as business income which will be subject to Income Tax. 

As well as this, farming NFTs for a staking reward will likely be considered to be income in the same way DeFi staking rewards would be. 

INCOME TAX

Selling, trading and gifting NFTs

For those not deemed to be traders, you’ll pay Capital Gains Tax when:

Buying an NFT with cryptocurrency: Capital Gains Tax due on any profit made on the cryptocurrency disposed of.

Selling an NFT for cryptocurrency or fiat currency: Capital Gains Tax due on any profit made on the NFT investment.

Swapping an NFT for another NFT: Capital Gains Tax due on any profit made on the NFT disposed of.

Gifting an NFT: Capital Gains Tax due on any increase value between the date you acquired the NFT and the date you gifted it (unless it’s a gift to a registered charity, in which case it’s tax-exempt).

Speak to a Crypto Tax Accountant to avoid any disputes with CRA and file your Taxes properly.

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