Taxes on your crypto gains are due June, 2020
At this point, pretty much everybody has virus fatigue and would rather talk about something else. Anything else.
So let’s talk about taxes.
If you were doing some crypto trading throughout 2019, you likely have some reportable gains.
Now, in light of the current situation, the government has extended your tax filing deadline to June 1 for individuals and businesses, with June 15 for self-employed people. So if you haven’t filed just yet, it’s a good time to get your cryptocurrency trades, expenses and records together.
You can get a full record of your trading when signed into your Bitvo account or by contacting the Bitvo support team. This makes your tax filing much easier.
It’s also a good time to review the important specifics about what events are taxable and how cryptocurrencies are treated by the Canada Revenue Agency (CRA).
So 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?
- -> Do you accept crypto for business?
- -> 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 Global 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 various regulators and the government have looked extensively at cryptocurrencies and determined that they are to be classified as a commodity for tax purposes in Canada.
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 the sale or exchange of something. In market terms, you buy and sell while in tax terms you acquire and dispose.
So when you go from CAD to BTC, you are acquiring BTC. If you decide to go from BTC to ETH, you are disposing of BTC and acquiring ETH for tax purposes. The CAD prices when you convert in or out of each asset must be recorded along with the dates.
The disposition or the sale of any cryptocurrency is considered a taxable event, and that includes payment for services and products.
What crypto expenses are deductible?
The CRA specifies expenses that can be deducted from your cryptocurrency trades. They typically include transaction fees, storage costs and other fees related to the acquisition, storage or disposal of an asset.
The impact of your deductions from the buying and selling of crypto will be based on your classification. Typically you are either 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 the majority of your income.
Investors, on the other hand, have less frequent transactions, longer holding periods and have less specialized knowledge. Investors receive favourable tax treatment for their gains under Canadian tax law.
Do you accept crypto for business?
In the case of an exchange for a good or service, the CRA calls this barter and expects you to keep track of the entry and exit prices and transaction dates. You are also expected to pay taxes on any gains you benefit from when you use your crypto to pay for something.
Businesses that accept payment in crypto have some additional responsibilities. Like any transaction in Canada, you are required to 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 and the sale or conversion back to CAD is considered disposition. Acquisition and disposition of cryptocurrencies may result in gains or losses for the business and 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 $10,500 CAD on the Bitvo exchange. Bitvo doesn’t charge any transaction fees, but if it did, you would include those fees as part of your entry price. Your total entry price is your acquisition price in CRA language.
Now let’s say you nail a sell for your BTC at $15,000 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. Or, in this example, a gain of $4500 minus any mining fees.
You are also expected to keep a variety of other details about your crypto acquisitions and dispositions, including the dates of the transactions.
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 $10,500 CAD, that’s your acquisition price for tax purposes.
If you then use your BTC to buy ETH, the BTC price at the time of the ETH transaction is the disposition, and the ETH price is the acquisition price 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 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, and that will give you your profit or loss for the period. These records can 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 rate is the personal rate in your jurisdiction unless you are incorporated as a small business.
As an individual or an investor, your tax rate will be the capital gains rate. 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 changes in regulatory and tax policy. So each year, you should consult the Canada Revenue Agency (CRA) website or your tax advisor at tax time, for up to date guidance.
To get your crypto transaction records from your Bitvo account, simply sign in and print. Or if you require some assistance, contact the Bitvo support team.
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