2022 was a tough year for buying and trading crypto. There were lots of trading opportunities, but a number of these were to the downside.
If you finished the year with a net loss on your closed transactions, losses can potentially be carried forward against future trading gains. Refer to the CRA or your tax professional for more information on how losses are treated for tax purposes.
Like 2021, the growth in DeFi, NFTs, and various rewards have made taxes for active crypto participants a bit more complex. While the CRA hasn’t made any material changes to its taxation of crypto, it continues to signal that they will be more aggressive in pursuing taxes owed.
And that means the need for good records. Good records are essential if you have to defend your claims in the event of a challenge. And a record of your crypto trades also makes your tax filing much easier.
Bitvo can help you with the record of your trading activity on the Bitvo trading platform. Your activity record is available when signed in to your Bitvo account or by contacting the Bitvo support team. Additionally, Bitvo has partnered with Koinly to make tax time as painless as possible.
For all of your other trading activities in DeFi, NFTs, and other crypto assets, contact the relevant place for the records you require.
NOTE: This article has been written in general terms and should be seen as broad guidance only. This article cannot be relied upon to cover specific situations that may be applicable to you and you should not act, or refrain from acting, upon the information contained in this article without obtaining specific professional advice tailored to your circumstances. Please contact your tax advisor or other qualified professional to discuss these matters in the context of your particular circumstances. Bitvo Inc., its affiliates, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this article or for any decision based on it (in whole or in part).
Key dates for Canadian crypto taxes
Here are the key dates for your tax filing in 2022.
April 30, 2023, is the deadline to file your taxes and the date for payment of any taxes owed. You will note that April 30 is a Sunday, so filing and taxes are due on the next business day, which is May 1, 2023.
If you are self-employed, the deadline is June 15, 2023, for your tax filing.
It’s also a good time to review the important specifics about taxable events and how cryptocurrencies are treated by the Canada Revenue Agency (CRA).
Your cryptocurrency is considered a commodity
Unchanged from 2021, crypto is still classified as a commodity. The government and regulators made this determination for taxes in Canada.
Crypto is still not considered legal tender in Canada. Therefore, paying for products or services, swaps, buying, and selling with crypto are all still considered barter.
Regardless of how you receive or transfer your cryptocurrency asset, you must track your entry and exit prices for tax purposes. This includes converting from one cryptocurrency, altcoin, or token to another.
This is standard for all commodities under the tax act.
The terms for the CRA remain constant as well.
Acquisition of crypto versus disposition
Disposition is a term for tax purposes that means selling or exchanging something.
You buy and sell in market terms while you acquire and dispose in tax terms.
So when you go from CAD to BTC, you are acquiring BTC in tax terminology. From BTC back to CAD is disposition.
If you decide to swap BTC for ETH, you are disposing of BTC and acquiring ETH in tax terms. This applies to swaps between various altcoins and tokens. It also applies to activities involving NFTs.
The disposition or the sale of any cryptocurrency, altcoin, or token is considered a taxable event. This also applies to using crypto for payment of services and products.
Keep track of the dates and exchange rates every time you buy, sell, or exchange. If you forget the cross rates, you can reference historical price services for the numbers you need.
What crypto expenses are deductible?
You can deduct certain expenses from your crypto trades based on CRA rules.
Expenses may include transaction fees, storage costs, and other fees related to the acquisition, storage, or asset disposal. This includes things like gas fees for ETH or ADA or other related products and services.
Expenses like gas fees also apply to the creation of NFTs if you mint and sell them.
The expenses you can use as deductions from the buying and selling crypto will be based on your classification.
Typically, you are classified either as a trader (business income) or as an investor (capital gains).
Are you a crypto trader or a crypto investor?
The CRA uses specific language to explain the difference between a trader and an investor. This has implications for your tax treatment.
Traders tend to have more frequent transactions and a shorter holding period. Traders are considered to have expert knowledge and spend a significant amount of their time on the activity.
You will also be classified as a trader for tax purposes if trading gains make up most of your income. In essence, a trader in crypto assets is treated as if trading is their business.
On the other hand, investors have less frequent transactions, longer holding periods, and less specialized knowledge.
Investors receive favourable tax treatment for their gains under Canadian tax law.
Using crypto for goods and services is called barter
If you use cryptocurrency in exchange for goods or services, the CRA calls this barter.
You must keep track of all of your barter transactions for tax purposes. Like your trades, the records must include entry and exit prices and transaction dates.
If your crypto asset went up from the time you acquired it to when you paid for something, the gain is taxable.
Businesses that accept payment in crypto have some additional responsibilities. Like any transaction in Canada, you must keep records of the transactions, including dates. You are also expected to collect and record transaction taxes like GST or HST if applicable.
When you accept crypto for payment of goods or services, you are acquiring crypto. The sale or conversion back to CAD is considered disposition.
Acquisition and disposition of cryptocurrencies may result in gains or losses for the business. These results must be reported in tax filings.
How to keep a record of crypto transactions
Whether you are a trader or investor, how much you owe from your crypto activities is determined in much the same way. You take the buy price, subtract the sell price and deduct expenses.
Let’s say you buy 1 BTC for $20,500 CAD on the Bitvo trading platform. Bitvo doesn’t charge any transaction fees, but you would include those fees as part of your entry price if it did.
Your total entry price, market price plus fees, is your acquisition price in CRA language.
Now let’s say you nail an exit for your BTC at $28,000 CAD. If the exchange had a fee, you would subtract that from your sale or exit price. That number represents the disposition price in CRA language.
The spread between your CAD to BTC to CAD is your gain or loss. In this example, a gain of $7,500 net of any fees.
Keep all the details about your crypto acquisitions and dispositions, including the transaction dates.
What about crypto to crypto transactions?
The same concept applies to transactions between one crypto asset and another. Each transaction is either an acquisition or a disposition.
So if you buy 1 BTC for $20,500 CAD, that’s your acquisition price for tax purposes.
When you convert BTC to ETH, the BTC is a sale or disposition. The ETH is considered a buy or acquisition for tax purposes.
In other words, you close out your BTC trade for a gain or loss and enter an ETH trade.
Treat every transaction, including coin to coin exchanges, based on CDN dollar conversion for simplicity.
And remember, your crypto trades out of the country must be recorded in the same manner for tax purposes.
Tax for NFTs
If you are trading NFTs, the typical gain or loss will be based on acquisition and disposition prices. There will also be taxes on any gain the ETH you used to buy the NFT as well. Buying an NFT means disposing of ETH, making it a taxable event.
But you might be a creator of NFTs, which adds a couple of things to be aware of.
Creating and selling NFTs constitutes business income. Any subsequent royalties you earn from future sales may be classified as investment income. But this also entitles you to expense the gas fees required to mint the NFT. However, you should also be aware that there may be GST and HST obligations if you mint and sell these as a business.
The CRA hasn’t provided much in the way of guidance on NFTs. You should consult a tax professional if you have any questions about your NFT activities.
Another area the CRA hasn’t commented on is DeFi. Almost all activities in DeFi create tax obligations. This includes yield farming, staking, and lending. Proceeds from almost all of these activities will be classified as income.
In addition, there are crypto rewards for playing, shopping, and browsing that may represent taxable assets. Rewards will typically be taxable at the time of sale or disposition.
Here again, records are an important part of determining what you owe and proving your claims to the CRA if they ask.
We recommend consulting a tax professional if you have any questions about your DeFi activities.
For the most part, stablecoins should not trigger a capital gain or loss unless the coin is traded in another currency. USDC/CAD may trigger capital gains or losses, if the peg experiences a temporary dislocation or due to the cross rate involved.
Keep your buy and sell records for stablecoin acquisitions and dispositions up to date in case of any questions.
Crypto traders have business income
At the end of the year, you calculate the net (gains minus losses) and subtract any fees. This final number will be your profit or loss for the period.
These records aren’t just valuable for taxes. They can also help you get a better picture of how you are trading and where you can make adjustments.
As a trader, you are classified as a business meaning your activities will be taxed as straight income. Your tax rate is your jurisdiction’s personal rate unless you are incorporated as a small business.
Investors get a different tax treatment.
Individual investors get capital gains treatment
As an individual investor, your tax rate will be the capital gains rate. That means you will be charged your personal rate on 50% of the capital gain recorded from your net crypto gains.
As the space for buying, selling and trading crypto matures, there will be an increase in activities that represent Investment Income as well.
Investors should also be aware of the superficial loss rule when harvesting capital losses for tax purposes. A minimum of 30 days between a sale and repurchase applies for a valid tax-loss sale.
Now, if you had a bad year and finished with a net realized loss on the year, you can carry these forward.
Annual losses may be used to reduce future years’ gains (and taxes). Keep note of the loss and add it to your tax forms along with any trading gains you get in the years going forward.
The CRA may not agree with you
The CRA will classify you based on how they see your activity. So if you say you are an investor when you are clearly a trader, you should be prepared to square up.
Not sure what you should be classified as?
Call a tax professional or the CRA and get direct guidance based on your situation.
The crypto area is an evolving space with periodic regulatory and tax policy changes. So each year, you should consult the Canada Revenue Agency (CRA) website or your tax advisor for up to date guidance.
To get your crypto transaction records completed on Bitvo, sign in to your Bitvo account and print. Don’t forget that Bitvo has partnered with Koinly to assist you with your taxes.
Or, if you need a hand, get in touch with the Bitvo support team. They are there 24/7 to help you with your questions.
Bitvo is a crypto trading platform regulated with FINTRAC as a Money Services Business and as a restricted dealer with the Canadian Securities Administrators.
Open your account, by clicking the orange button below.