Bitvo’s Canadian crypto tax guide for 2020
Yes, it’s that time of year again, tax time.
If you are working for a company, you probably have your T4 by now or will have it soon.
To complete your 2020 taxes, you may have to consider your crypto trading activities.
Bitvo can help you with the record of your trading activity on the Bitvo exchange. This is available when signed into your Bitvo account or by contacting the Bitvo support team.
A record of your crypto trades makes your tax filing much easier.
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).
April 30, 2021 is the deadline to file your taxes and for the payment of any taxes owing. If you are self employed, the deadline is Jun 15, 2021 for your tax filing.
In this tax guide we will discuss the following:
- -> Your cryptocurrency is considered a commodity
- -> What is a disposition?
- -> What crypto expenses are deductible?
- -> Are you a crypto trader or a crypto investor?
- -> Using crypto for goods and services is called barter
- -> How to record your crypto transactions
- -> What about crypto to crypto transactions?
- -> Crypto traders and investors have different tax rates
- -> The CRA may not agree with you
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).
Your cryptocurrency is considered a commodity
The first thing you should know is that crypto is classified as a commodity. The government and regulators made this determination for taxes in Canada.
They have also stated that crypto of any kind is not considered to be legal tender in Canada. Which means that paying for products or services with crypto is considered barter. We’ll get into why that’s important shortly.
Regardless of how you receive or transfer your cryptocurrency asset, you need to track your entry and exit prices for tax purposes. This includes converting from one crypto coin to another.
This is standard for all commodities under the tax act.
What is a 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.
If you decide to swap BTC for ETH, you are disposing of BTC and acquiring ETH in tax terms.
The disposition or the sale of any cryptocurrency 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 lots of 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.
The expenses you can use as deductions from the buying and selling of crypto will be based on your classification.
Typically you are either classified as a trader or an investor.
Are you a crypto trader or a crypto investor?
The CRA uses some 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. They 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 crypto in exchange for a good or service, 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.
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 exchange. 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 a sell for your BTC at $61,000 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 $40,500 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.
Crypto traders and investors have different tax rates
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.
Your tax rate will be the capital gains rate as an individual or an investor.
That means you will be charged your personal rate on only 50% of the capital gain.
Investors should 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 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
Remember, 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 some 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 from your Bitvo account, sign in and print.
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 fast, secure easy to use cryptocurrency exchange for Canadians.
You can buy Bitcoin, Ether and other cryptocurrencies with confidence on Bitvo.
Simply click on the orange button below, and register.