With the historic rise of a brand new asset class, cryptocurrencies have become in need of vital taxation rules by the CRA as the total value of the cryptocurrency market almost reaches two trillion. However, the CRA has come under criticism for being way behind the curve when it comes to basic cryptocurrency taxation and even further behind the taxation of DeFi, or decentralized finance, and all the different protocols that come with it. If you are living and trading cryptocurrency in Canada, you must follow their specific guidance on what rules currently apply to the crypto sphere. With our guide, you will quickly learn how to be tax-efficient with your cryptocurrency.
The CRA splits cryptocurrency taxation into capital gains and income. Capital gains come from disposing of assets, such as when you sell bitcoin (provided you make a gain). Business Income comes from activities that generate additional income for you, such as staking and liquidity pools. All crypto assets that they deem to be taxable will be taxed at their fair market value at the date of disposal.
Capital gains tax is directly linked to the taxpayer bracket you are in. For example, if you are in the highest federal income tax bracket, you will pay 33% capital gains tax on any cryptocurrency that you dispose of. The good news is, you will only pay capital gain tax on HALF of your capital gain, creating an adjusted highest capital gains tax rate of 16.5%.
There are several provincial tax rates in Canada, which you can find [here](insert link). However, for this guide, we will be following the Federal tax brackets to avoid confusion. It is important to make sure you are following the specific tax rates of the province you reside in.
In short, Yes, CRA is tracking users of centralized exchanges (CEX) through their Know Your Customer protocols (KYC). The CRA has confirmed that they are working with Coinsquare, to ensure investors are accurately and promptly recording and reporting their crypto investments with the CRA. Although communication with many other exchanges, such as Binance, have not been confirmed, it would be good practice to assume records have been exchanged with the CRA. With this information, the CRA essentially knows all the crucial dates of your trades, when you initially invested in crypto, and when you cash out.
However, not all transactions are as easy to track. For example, in DeFi, there are many decentralized exchanges (DEX), such as Uniswap or PancakeSwap, which are trustless and permissionless, not requiring any authentication which keeps the user completely anonymous. Trading on a DEX or holding your cryptocurrency in a cold wallet offline requires private wallets such as a Metamask wallet, where the user holds their keys and transactions completely privately, as the wallet does not require KYC. Because the blockchain is anonymous, the CRA will find it extremely hard to track all transactions and the movement of funds. However, if you suddenly receive a large amount of funds from a private wallet into a hot wallet on an exchange, it will arouse suspicion. CRA is partnered with FINTRAC to investigate large instances of money laundering and tax evasion, even in the crypto space.
Remember: The more mainstream cryptocurrency becomes, the more regulation will ultimately follow, so recognizing when and how your crypto can be tracked is extremely important for tax purposes.
CRA requires cryptocurrency users to calculate their gain using a Cost Basis. This can be done by adding the total fair market value of the crypto you buy and any purchase fees together. Using your cost basis, a capital gain will occur if you sell above this cost basis or capital losses if you sell below this value. Capital losses can be used to offset future gains, so it’s important to keep hold of the record!
Example:
Kate lives in Vancouver, B.C.
To calculate her capital gain, we take her selling price and minus her cost basis to find out her total capital gain. For Kate, her gain is ($60,000 LESS $20,000 cost basis), giving her a taxable gain of $40,000. However, the CRA states you must only pay tax on half your capital gain.
She is in the lowest Federal tax bracket of 15%, her provisional tax rate is 5.06%. Her gain is divided by two ($20,000), leaving a taxable amount of $20,000. On her taxable $20,000, she will be taxed at 20.05%, giving her a total tax payable amount of $4,100 for the 21/22 tax year.
Remember: A capital gain is only triggered once capital assets are disposed of, and a gain is made. The CRA recognizes several activities as disposals:
It’s not all bad news; the CRA does not view all cryptocurrency transactions as disposals and taxable.
Not all events will be viewed by the CRA as taxable disposals:
As the cryptocurrency market is constantly changing and investors are often speculating on several coins or tokens, which will ultimately fail, it is important to capture any small losses that you may have made during the tax year. This action is called ‘Loss Harvesting’ and is a vital process that cryptocurrency investors should take before calculating their gain for the year. Loss Harvesting helps reduce your overall cryptocurrency gain by offsetting part of it with losses. It is possible to completely write off any gains if your losses are large enough and even carry them forward to offset future gains.
Fortunately, the CRA stipulates that you are able to use any losses made on your cryptocurrency journey. However, similar to the gains, it's stated that you can only deduct 50% of your loss as a tax-deductible when filing your year-end taxes. This means, even if you were to make a loss of $500, only $250 can be written off against your current tax liability.
Remember: When utilizing losses, only claim a loss to the threshold of your income allowance of $14,398 before carrying the losses forward with you into the next tax year.
Example:
Earlier, when Kate sold her bitcoin for $60,000, she forgot to include a loss she suffered trading a small market cap coin the year before. As she had made no gains in the previous year, the loss of $5,000 was brought forward to offset her current gain. As mentioned, Kate can only use 50% of the loss to offset current gains, giving her a ‘tax break’ of $2,500. Kate had a taxable business income of $20,000, down to $17,500 with her allowed losses. Using her tax rate of 20.06%, she will now only pay $3,587 in tax instead of $4,100, a massive saving for simply harvesting her losses made a long time ago.
Although most agencies around the world are yet to release specific advice on lost or stolen cryptocurrency, the CRA does generally allow Canadian taxpayers to deduct any lost or stolen assets against their tax liability, which means the same rules should apply to cryptocurrency. Based on the adjusted cost basis method, it’s presumed that only your cost basis can be deducted, instead of the fair market value at the time the crypto is lost or stolen.
As we see greater and greater mainstream adoption of cryptocurrency, many other potential sources of income have become available for those dabbling in the space. A greater amount of sources means a greater amount of rules which the CRA must put in place for taxation. Let's see what the CRA has said:
Luckily, CRA does not count receiving airdrops as business income, but capital gains tax will need to be paid on the entire fair market value after disposing of the airdropped tokens, as CRA views airdropped tokens’ cost basis as 0. CRA counts the cost basis of any airdropped token as the fair market value on the day it was received.
CRA does not give any specific advice for the taxation of forks. Similar to airdrops, business income will not be payable, but the entire proceeds of the airdropped tokens are subject to capital gains.
With the historic rise of NFTs, or non-fungible tokens, it can become quite confusing knowing which events in the creation, buying, and selling of NFTs cause what taxable events. Although CRA has no specific guidance on how they expect NFTs to be taxed, we can infer based on the type of income or gain they create.
At the heart of the crypto philosophy are DAOs, a completely decentralized organization with no central authority. As DAOs are not owned by anyone and cannot pay taxes by themselves, all the profits are funneled through to the investors. This means:
ICOs are the main way funds are raised for new cryptocurrency projects, the cryptocurrency version of an IPO. Investors often trade Bitcoin or Ethereum for the new project's coin, in expectation of a great future return. ICO investors often receive a large amount of coins of their initial investment. Investors base their judgment on whether a project is worth it or not via a whitepaper, a technical document that explains what the project hopes to achieve and its process.
Often with CRA, there is no solid advice:
Many ICO creators or founders will run into problems if they don’t anticipate the large potential tax return due from a successful ICO.
The CRA is still yet to recognize specific guidelines for business income-generating activities via cryptocurrency, mainly due to their adjusted cost basis method, giving most a cost basis of zero. However, some cryptocurrency business income is still taxable.
Often, investors only engage with the buying and selling of cryptocurrency. However, there is a large underbelly of the cryptocurrency community that takes advantage of a whole range of methods which grant great opportunity for all in the cryptocurrency space, that would be unimaginable in today’s centralized, fiat climate.
A lot of these activities take place in the land of DeFi, or decentralized finance, where there is little to no regulation without rules set in stone. A trustless and permissionless system allows anyone to contribute to a liquidity pool or receive an airdrop. DeFi does create a problem for the CRA when it comes to taxation, as the government is naturally centralized. Neglecting that, there are still some rules in place for investors, as most DeFi protocols are considered business activity by the CRA.
Behind the curve of many other countries, the CRA is unable to tax individuals for airdrop income. Only capital gains tax will be payable on the proceeds if sold; the ‘cost basis’ of an airdrop is zero, so tax is paid on all of the profit. Businesses that receive airdrops will need to pay income tax.
Staking allows users to put their cryptocurrency to work in the blockchain, consequently earning them passive income. The CRA recognizes staking as a business activity, utilizing a commercial activity for yourself. Staking clearly shows using your initial assets to ‘earn’ crypto, putting it subject to business income tax. CRA expects any income from staking to be taxed at the fair market value on the date you received the business income.
Remember: Even though you will pay income tax on any staking income, CRA requires income tax to be paid on any gains made on the disposal of staking rewards. In this context, the ‘cost basis’ will also be the fair market value on the date you received the staked rewards.
Although staking is subject to business income tax for almost all participants, it can be a great way to create passive income, leveraging your already existing portfolio.
Such small advice has been given on liquidity pools by CRA; however, the new liquidity pool tokens we receive for providing our liquidity are subject to income tax and seen as ‘business income.’
However, as these DeFi protocols become more popular over time, we could see CRA reassess liquidity pools, like the UK did, by assuming a crypto-to-crypto trade has taken place when you initially provide liquidity, as more and more liquidity pools are starting to provide their own token.
The CRA views crypto mining as two separate activities: Mining as a business and as an individual. Simply put, individual miners only pay capital gains tax when they dispose of their cryptocurrency, businesses pay income tax.
Hobby miners pay capital gains tax on their entire proceeds as the cost basis of their mined crypto is zero. Business miners are required to keep track of their cost basis via either of the two methods:
The CRA also recognizes many play-to-earn crypto games such as Axie Infinity that allow users to ‘earn’ income by playing or engaging in the content. This can even come in the form of watching to learn or learn-to-earn like the Coinbase Learning Center. As you are almost always providing a service for the earned income, the CRA treats it as business income and is required to be taxed at your federal tax rate.
Sadly, business income generated from cryptocurrency is completely taxable, unlike the 50% reduction given to crypto capital gains. As we have seen, most traditional income sources in crypto do not count as crypto income to CRA. The value of any crypto business income is taken as the fair market value on the day it was earned. Investors then need to apply their Federal and Provincial tax bracket to the earned income.
The CRA has been very reluctant to recognize DeFi at all, so it is important to note that there is no clear guidance on how Canadian investors should pay income or capital gains tax on any DeFi Assets. The conscious investor should follow two simple rules:
It’s important to note that most DeFi activities will be business income-based, such as staking and liquidity pools, the main reason for DeFi for most.
It is unsure whether the CRA will ramp up and begin to set clear guidelines for the taxation of DeFi. Until then, we should look forward to countries and agencies with a better grasp on DeFi taxation to see what is to come for Canadian Investors.
Now that you know how your cryptocurrency is going to be taxed, it’s important to know what records the CRA wants and needs to confirm those transactions. The CRA has made it clear that it requires all crypto investors to keep up-to-date and accurate records of their crypto transactions. This is required due to the fragility of centralized exchange records, often getting deleted after a short period of time (3-6 months).
Because of this, the CRA requires investors to keep up to six years of records. CRA knows how the exchanges operate and rests the liability of collecting the transactions on the taxpayer. The CRA expects meticulous detail in your records:
Most of this extremely in-detail record-keeping can shy investors away from cryptocurrency. However, there are many great softwares and accounting firms, such as MetaCounts, already out there that cater to almost all cost-basis methods, including Canada’s adjusted cost basis. Investors can simply sync their data between the exchange and the software using a self-generated API and securely transfer their trading data. This will help save an unforeseen amount of hours for the average investor.
Remember: Software tracking all your transactions is a great way to maximize your loss harvesting and stay tax-compliant; consider using MetaCounts.
The CRA requires investors to use their adjusted cost basis method when calculating any gains. The adjusted cost basis method takes into account the fair market value at the time of purchase and any reasonable expenses, such as transfer fees or any small exchange fees.
When selling, the adjusted cost base method uses this formula:
Cost basis−coins sold×average costCost basis−coins sold×average cost
Here, the average cost has to be constantly updated by the investor to ensure they keep an accurate average cost of their crypto.
Now, to make things more complicated for investors, the CRA has put the superficial loss rule in place to ensure investors are not manipulating their losses and can only claim losses under certain conditions.
Put simply, the CRA states that any capital losses which meet both requirements cannot be claimed as an offset.
You can find more advice about the superficial loss rule here.
As we spoke about before, it would be beneficial to use a service that helps reassure you that the right amount of tax is being paid and when, such as MetaCounts, which is a cryptocurrency accounting firm.
Unlike several other services, MetaCounts is an actual cryptocurrency accounting firm, focused completely on the cryptosphere with expertise in DeFi and NFTs and crypto taxes.
Remember: You SHOULD be claiming any losses available to reduce your crypto tax liability by as much as possible.
Unlike software which only provides basic crypto tax information, MetaCounts provides the full spectrum of needs that any individual, or business, crypto investor needs to stay law-abiding and tax-efficient.
Not only do we cover in-depth tax filings for all types of crypto income and gains, but we also ensure we actually plan your taxes to maximize savings in the coming years. The average tax payer will spend weeks putting all their transactions together and we would recommend MetaCounts as a time-efficient, secure, and up-to-date method of staying tax-compliant and knowledgeable in the cryptosphere. Use MetaCounts.
Remember: We keep all information private and secure. At MetaCounts, we are fully encrypted with security in place to protect your data from any external or internal threat.
Cryptocurrency taxes in Canada can be confusing, as it often involves unique circumstances not covered by traditional tax laws. However, by understanding the basic principles of cryptocurrency taxation, keeping accurate records of your transactions, and utilizing available tax planning strategies, you can navigate the complexities and minimize your tax liability.
Remember to consult with a tax professional who is knowledgeable about cryptocurrency taxation in Canada to ensure that you comply with the latest regulations and make informed decisions. Additionally, consider using specialized cryptocurrency accounting services like MetaCounts to streamline the tax reporting process and maximize your tax efficiency.
Disclaimer: The information provided on this website is for general informational purposes only and should not be considered professional advice. While we strive to ensure accuracy, accounting and financial regulations are subject to change, and it is recommended to consult a qualified professional before making any financial decisions. The use of futurecpa.ca does not create a client relationship, and we do not endorse or guarantee the accuracy of third-party content. We value confidentiality but cannot guarantee the security of transmitted information. The content on futurecpa.ca may change without notice. By using this website, you agree to these terms and conditions. For personalized advice, please contact us by filling our contact form or reach out to us at help@futurecpa.ca.
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With the historic rise of a brand new asset class, cryptocurrencies have become in need of vital taxation rules by the CRA as the total value of the cryptocurrency market almost reaches two trillion. However, the CRA has come under criticism for being way behind the curve when it comes to basic cryptocurrency taxation and even further behind the taxation of DeFi, or decentralized finance, and all the different protocols that come with it. If you are living and trading cryptocurrency in Canada, you must follow their specific guidance on what rules currently apply to the crypto sphere. With our guide, you will quickly learn how to be tax-efficient with your cryptocurrency.
The CRA splits cryptocurrency taxation into capital gains and income. Capital gains come from disposing of assets, such as when you sell bitcoin (provided you make a gain). Business Income comes from activities that generate additional income for you, such as staking and liquidity pools. All crypto assets that they deem to be taxable will be taxed at their fair market value at the date of disposal.
Capital gains tax is directly linked to the taxpayer bracket you are in. For example, if you are in the highest federal income tax bracket, you will pay 33% capital gains tax on any cryptocurrency that you dispose of. The good news is, you will only pay capital gain tax on HALF of your capital gain, creating an adjusted highest capital gains tax rate of 16.5%.
There are several provincial tax rates in Canada, which you can find [here](insert link). However, for this guide, we will be following the Federal tax brackets to avoid confusion. It is important to make sure you are following the specific tax rates of the province you reside in.
In short, Yes, CRA is tracking users of centralized exchanges (CEX) through their Know Your Customer protocols (KYC). The CRA has confirmed that they are working with Coinsquare, to ensure investors are accurately and promptly recording and reporting their crypto investments with the CRA. Although communication with many other exchanges, such as Binance, have not been confirmed, it would be good practice to assume records have been exchanged with the CRA. With this information, the CRA essentially knows all the crucial dates of your trades, when you initially invested in crypto, and when you cash out.
However, not all transactions are as easy to track. For example, in DeFi, there are many decentralized exchanges (DEX), such as Uniswap or PancakeSwap, which are trustless and permissionless, not requiring any authentication which keeps the user completely anonymous. Trading on a DEX or holding your cryptocurrency in a cold wallet offline requires private wallets such as a Metamask wallet, where the user holds their keys and transactions completely privately, as the wallet does not require KYC. Because the blockchain is anonymous, the CRA will find it extremely hard to track all transactions and the movement of funds. However, if you suddenly receive a large amount of funds from a private wallet into a hot wallet on an exchange, it will arouse suspicion. CRA is partnered with FINTRAC to investigate large instances of money laundering and tax evasion, even in the crypto space.
Remember: The more mainstream cryptocurrency becomes, the more regulation will ultimately follow, so recognizing when and how your crypto can be tracked is extremely important for tax purposes.
CRA requires cryptocurrency users to calculate their gain using a Cost Basis. This can be done by adding the total fair market value of the crypto you buy and any purchase fees together. Using your cost basis, a capital gain will occur if you sell above this cost basis or capital losses if you sell below this value. Capital losses can be used to offset future gains, so it’s important to keep hold of the record!
Example:
Kate lives in Vancouver, B.C.
To calculate her capital gain, we take her selling price and minus her cost basis to find out her total capital gain. For Kate, her gain is ($60,000 LESS $20,000 cost basis), giving her a taxable gain of $40,000. However, the CRA states you must only pay tax on half your capital gain.
She is in the lowest Federal tax bracket of 15%, her provisional tax rate is 5.06%. Her gain is divided by two ($20,000), leaving a taxable amount of $20,000. On her taxable $20,000, she will be taxed at 20.05%, giving her a total tax payable amount of $4,100 for the 21/22 tax year.
Remember: A capital gain is only triggered once capital assets are disposed of, and a gain is made. The CRA recognizes several activities as disposals:
It’s not all bad news; the CRA does not view all cryptocurrency transactions as disposals and taxable.
Not all events will be viewed by the CRA as taxable disposals:
As the cryptocurrency market is constantly changing and investors are often speculating on several coins or tokens, which will ultimately fail, it is important to capture any small losses that you may have made during the tax year. This action is called ‘Loss Harvesting’ and is a vital process that cryptocurrency investors should take before calculating their gain for the year. Loss Harvesting helps reduce your overall cryptocurrency gain by offsetting part of it with losses. It is possible to completely write off any gains if your losses are large enough and even carry them forward to offset future gains.
Fortunately, the CRA stipulates that you are able to use any losses made on your cryptocurrency journey. However, similar to the gains, it's stated that you can only deduct 50% of your loss as a tax-deductible when filing your year-end taxes. This means, even if you were to make a loss of $500, only $250 can be written off against your current tax liability.
Remember: When utilizing losses, only claim a loss to the threshold of your income allowance of $14,398 before carrying the losses forward with you into the next tax year.
Example:
Earlier, when Kate sold her bitcoin for $60,000, she forgot to include a loss she suffered trading a small market cap coin the year before. As she had made no gains in the previous year, the loss of $5,000 was brought forward to offset her current gain. As mentioned, Kate can only use 50% of the loss to offset current gains, giving her a ‘tax break’ of $2,500. Kate had a taxable business income of $20,000, down to $17,500 with her allowed losses. Using her tax rate of 20.06%, she will now only pay $3,587 in tax instead of $4,100, a massive saving for simply harvesting her losses made a long time ago.
Although most agencies around the world are yet to release specific advice on lost or stolen cryptocurrency, the CRA does generally allow Canadian taxpayers to deduct any lost or stolen assets against their tax liability, which means the same rules should apply to cryptocurrency. Based on the adjusted cost basis method, it’s presumed that only your cost basis can be deducted, instead of the fair market value at the time the crypto is lost or stolen.
As we see greater and greater mainstream adoption of cryptocurrency, many other potential sources of income have become available for those dabbling in the space. A greater amount of sources means a greater amount of rules which the CRA must put in place for taxation. Let's see what the CRA has said:
Luckily, CRA does not count receiving airdrops as business income, but capital gains tax will need to be paid on the entire fair market value after disposing of the airdropped tokens, as CRA views airdropped tokens’ cost basis as 0. CRA counts the cost basis of any airdropped token as the fair market value on the day it was received.
CRA does not give any specific advice for the taxation of forks. Similar to airdrops, business income will not be payable, but the entire proceeds of the airdropped tokens are subject to capital gains.
With the historic rise of NFTs, or non-fungible tokens, it can become quite confusing knowing which events in the creation, buying, and selling of NFTs cause what taxable events. Although CRA has no specific guidance on how they expect NFTs to be taxed, we can infer based on the type of income or gain they create.
At the heart of the crypto philosophy are DAOs, a completely decentralized organization with no central authority. As DAOs are not owned by anyone and cannot pay taxes by themselves, all the profits are funneled through to the investors. This means:
ICOs are the main way funds are raised for new cryptocurrency projects, the cryptocurrency version of an IPO. Investors often trade Bitcoin or Ethereum for the new project's coin, in expectation of a great future return. ICO investors often receive a large amount of coins of their initial investment. Investors base their judgment on whether a project is worth it or not via a whitepaper, a technical document that explains what the project hopes to achieve and its process.
Often with CRA, there is no solid advice:
Many ICO creators or founders will run into problems if they don’t anticipate the large potential tax return due from a successful ICO.
The CRA is still yet to recognize specific guidelines for business income-generating activities via cryptocurrency, mainly due to their adjusted cost basis method, giving most a cost basis of zero. However, some cryptocurrency business income is still taxable.
Often, investors only engage with the buying and selling of cryptocurrency. However, there is a large underbelly of the cryptocurrency community that takes advantage of a whole range of methods which grant great opportunity for all in the cryptocurrency space, that would be unimaginable in today’s centralized, fiat climate.
A lot of these activities take place in the land of DeFi, or decentralized finance, where there is little to no regulation without rules set in stone. A trustless and permissionless system allows anyone to contribute to a liquidity pool or receive an airdrop. DeFi does create a problem for the CRA when it comes to taxation, as the government is naturally centralized. Neglecting that, there are still some rules in place for investors, as most DeFi protocols are considered business activity by the CRA.
Behind the curve of many other countries, the CRA is unable to tax individuals for airdrop income. Only capital gains tax will be payable on the proceeds if sold; the ‘cost basis’ of an airdrop is zero, so tax is paid on all of the profit. Businesses that receive airdrops will need to pay income tax.
Staking allows users to put their cryptocurrency to work in the blockchain, consequently earning them passive income. The CRA recognizes staking as a business activity, utilizing a commercial activity for yourself. Staking clearly shows using your initial assets to ‘earn’ crypto, putting it subject to business income tax. CRA expects any income from staking to be taxed at the fair market value on the date you received the business income.
Remember: Even though you will pay income tax on any staking income, CRA requires income tax to be paid on any gains made on the disposal of staking rewards. In this context, the ‘cost basis’ will also be the fair market value on the date you received the staked rewards.
Although staking is subject to business income tax for almost all participants, it can be a great way to create passive income, leveraging your already existing portfolio.
Such small advice has been given on liquidity pools by CRA; however, the new liquidity pool tokens we receive for providing our liquidity are subject to income tax and seen as ‘business income.’
However, as these DeFi protocols become more popular over time, we could see CRA reassess liquidity pools, like the UK did, by assuming a crypto-to-crypto trade has taken place when you initially provide liquidity, as more and more liquidity pools are starting to provide their own token.
The CRA views crypto mining as two separate activities: Mining as a business and as an individual. Simply put, individual miners only pay capital gains tax when they dispose of their cryptocurrency, businesses pay income tax.
Hobby miners pay capital gains tax on their entire proceeds as the cost basis of their mined crypto is zero. Business miners are required to keep track of their cost basis via either of the two methods:
The CRA also recognizes many play-to-earn crypto games such as Axie Infinity that allow users to ‘earn’ income by playing or engaging in the content. This can even come in the form of watching to learn or learn-to-earn like the Coinbase Learning Center. As you are almost always providing a service for the earned income, the CRA treats it as business income and is required to be taxed at your federal tax rate.
Sadly, business income generated from cryptocurrency is completely taxable, unlike the 50% reduction given to crypto capital gains. As we have seen, most traditional income sources in crypto do not count as crypto income to CRA. The value of any crypto business income is taken as the fair market value on the day it was earned. Investors then need to apply their Federal and Provincial tax bracket to the earned income.
The CRA has been very reluctant to recognize DeFi at all, so it is important to note that there is no clear guidance on how Canadian investors should pay income or capital gains tax on any DeFi Assets. The conscious investor should follow two simple rules:
It’s important to note that most DeFi activities will be business income-based, such as staking and liquidity pools, the main reason for DeFi for most.
It is unsure whether the CRA will ramp up and begin to set clear guidelines for the taxation of DeFi. Until then, we should look forward to countries and agencies with a better grasp on DeFi taxation to see what is to come for Canadian Investors.
Now that you know how your cryptocurrency is going to be taxed, it’s important to know what records the CRA wants and needs to confirm those transactions. The CRA has made it clear that it requires all crypto investors to keep up-to-date and accurate records of their crypto transactions. This is required due to the fragility of centralized exchange records, often getting deleted after a short period of time (3-6 months).
Because of this, the CRA requires investors to keep up to six years of records. CRA knows how the exchanges operate and rests the liability of collecting the transactions on the taxpayer. The CRA expects meticulous detail in your records:
Most of this extremely in-detail record-keeping can shy investors away from cryptocurrency. However, there are many great softwares and accounting firms, such as MetaCounts, already out there that cater to almost all cost-basis methods, including Canada’s adjusted cost basis. Investors can simply sync their data between the exchange and the software using a self-generated API and securely transfer their trading data. This will help save an unforeseen amount of hours for the average investor.
Remember: Software tracking all your transactions is a great way to maximize your loss harvesting and stay tax-compliant; consider using MetaCounts.
The CRA requires investors to use their adjusted cost basis method when calculating any gains. The adjusted cost basis method takes into account the fair market value at the time of purchase and any reasonable expenses, such as transfer fees or any small exchange fees.
When selling, the adjusted cost base method uses this formula:
Cost basis−coins sold×average costCost basis−coins sold×average cost
Here, the average cost has to be constantly updated by the investor to ensure they keep an accurate average cost of their crypto.
Now, to make things more complicated for investors, the CRA has put the superficial loss rule in place to ensure investors are not manipulating their losses and can only claim losses under certain conditions.
Put simply, the CRA states that any capital losses which meet both requirements cannot be claimed as an offset.
You can find more advice about the superficial loss rule here.
As we spoke about before, it would be beneficial to use a service that helps reassure you that the right amount of tax is being paid and when, such as MetaCounts, which is a cryptocurrency accounting firm.
Unlike several other services, MetaCounts is an actual cryptocurrency accounting firm, focused completely on the cryptosphere with expertise in DeFi and NFTs and crypto taxes.
Remember: You SHOULD be claiming any losses available to reduce your crypto tax liability by as much as possible.
Unlike software which only provides basic crypto tax information, MetaCounts provides the full spectrum of needs that any individual, or business, crypto investor needs to stay law-abiding and tax-efficient.
Not only do we cover in-depth tax filings for all types of crypto income and gains, but we also ensure we actually plan your taxes to maximize savings in the coming years. The average tax payer will spend weeks putting all their transactions together and we would recommend MetaCounts as a time-efficient, secure, and up-to-date method of staying tax-compliant and knowledgeable in the cryptosphere. Use MetaCounts.
Remember: We keep all information private and secure. At MetaCounts, we are fully encrypted with security in place to protect your data from any external or internal threat.
Cryptocurrency taxes in Canada can be confusing, as it often involves unique circumstances not covered by traditional tax laws. However, by understanding the basic principles of cryptocurrency taxation, keeping accurate records of your transactions, and utilizing available tax planning strategies, you can navigate the complexities and minimize your tax liability.
Remember to consult with a tax professional who is knowledgeable about cryptocurrency taxation in Canada to ensure that you comply with the latest regulations and make informed decisions. Additionally, consider using specialized cryptocurrency accounting services like MetaCounts to streamline the tax reporting process and maximize your tax efficiency.
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