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The Canadian Revenue Agency (CRA) has issued guidance that virtual currencies are generally treated as commodities under the Income Tax Act: "Any income from transactions involving cryptocurrency is generally treated as business income or as a capital gain, depending on the circumstances."
This means that the CRA treats cryptocurrency transactions like barter transactions. Taxpayers have to establish if a cryptocurrency activity results in income or capital because this affects the way the revenue is treated for income tax purposes.
You can see the "Is it business income or capital gain?" section in the guidance to help determine which treatment applies to you (or check out this guide). The difference is that business income is included in taxable income at 100%, whereas capital gains are included in taxable income at 50% (as in the US, charges, fees, and commissions can be deducted).
Crypto:crypto trades (e.g. BTC for ETH) are also treated as barter transactions and taxed the same way.
If you have capital property (non-business, personal use), then the CRA requires that capital gains treatment be applies to your cryptocurrency disposals. The CRA requires using Adjusted Cost Base (ACB) for these calculations. Your capital gains go onto your Schedule 3 Form. See here for an explanation of how ACB works.
If your cryptocurrency disposals are instead classified as business income, then the CRA mandates using inventory accounting methods to track the income. You have two options for assessing the cost basis of your cryptocurrency holdings:
- value each item in the inventory at its cost when it was acquired or its fair market value at the end of the year, whichever is lower
- value the entire inventory at its fair market value at the end of the year (generally, the price that you would pay to replace an item or the amount that you would receive if you sold an item)
In this case, your business income would go on T2125 Statement of Business or Professional Activities.
Additionally, when you hold specified foreign property greater than CAD 100,000 in value during any time during the year, you are required to fill out a T1135 – Foreign Income Verification Statement.
The CRA also has a superficial loss rule to prevent taking advantage of capital losses. We are working on building this into CoinTracker however would need to be calculated manually for the time being using the Capital Gains CSV CoinTracker provides.
Airdrops and Forks
For airdrops and hard forks, unlike the US where guidance is unclear, in Canada the cost basis is zero for these coins. Therefore when the coins are disposed the entire proceeds are considered capital gains (for individuals) or income (for businesses).
Income tax treatment for miners depends on whether the mining activity is a personal activity (hobby) or a business activity. This is decided case by case. A hobby is usually undertaken for fun, enjoyment, or entertainment (rather than for business reasons).
However if a hobby is pursued in a sufficiently commercial manner, it can be considered a business activity and taxed as such. If the mining is a business activity, then business income tax rules apply and any costs associated with mining (e.g. equipment, electricity, etc.) would need to be calculated on a per coin basis and then could be deducted against the proceeds.
If you choose to file your Canadian crypto taxes with TurboTax, unfortunately they do not currently support uploading cryptocurrency transaction files. Therefore here is how we have entered transactions into TurboTax Canada using the data from CoinTracker:
- In TurboTax, navigate to Income > Investments > Capital Gains and Capital Gains Deduction Profile
- Check the first box Sold stocks ... and Continue
- For "Type of capital property disposed of" enter Personal-use property
- For "# of units for shares or face value" enter the quantity of coins bought/sold. You can look this up in the cost basis CSV from the CoinTracker Tax page (after purchasing a tax plan). Note: make sure you are using the correct year's data for the year of return that you are filing (e.g. 2017)
- Leave "Corporation name and share class or name of issuer" and "Maturity date - bonds (dd/mm/yyyy)" blank
- For "Year of acquisition (yyyy)" enter the year that you purchased the coins that were disposed of for that taxable event
- For "Date of disposition (dd/mm)" enter the date that the coins were sold or traded
- For "Proceeds of disposition" enter the Proceeds amount from cost basis CSV
- For "Adjusted cost base" enter the Cost Basis amount from the cost basis CSV. Note: make sure you are using *Adjusted Cost Base* for your "Cost Basis Method" on the tax page for Canada
- For "Outlays and expenses" you can enter any fees or expenses you have incurred for your crypto transactions (coming soon to CoinTracker). If you did not have any or don't know what they were, you can leave this at 0.00
- Click "Enter New Dispositions" for each taxable event and then press "Done"
Note: entering one huge averaged transaction yields the same total capital gain as entering each transaction individually (but is not a complete record of each taxable event). If you choose to enter one huge averaged crypto transaction, you can find the numbers for Proceeds and Cost Basis on the top right side of the CoinTracker tax page (after purchasing a tax plan)