In Canada, cryptocurrency is not considered legal tender. The only legal tender in Canada is the currency (banknotes and coins) that is issued by the Royal Canadian Mint Act and the Bank of Canada. This implies that neither the Canadian government nor any central authority supports the virtual currency.
So if these central authorities do not consider crypto as a currency, what is the status of Canada’s crypto tax? And are there any Canadian crypto laws? How is crypto taxed in Canada? To answer these questions we need to explore the status of cryptocurrency in Canada.
Status Of Cryptocurrency In Canada
Fulfilling the purpose of the Income Tax Act, the Canada Revenue Agency (CRA) considers cryptocurrency a commodity. The CRA established a cryptocurrency section in 2017 to guarantee that whoever invests in cryptocurrencies pays their fair share of tax on crypto in Canada. It also conducts crypto audits for tax purposes.
Depending on the conditions, any revenue earned from Bitcoin transactions is generally categorized as either business income or capital gain. Profits are classified as either business income or capital gains, while losses are classified as either business losses or capital losses.
Can the CRA Track Crypto Investments?
The Canada Revenue Agency (CRA) can certainly track your cryptocurrency investments. The CRA has been working with crypto exchanges to get information about Canadian crypto investors to make sure that they are reporting their cryptocurrency investments and reporting their crypto taxes.
From January 1, 2022, Canadian Money Service Businesses (MSBs) have to report transactions greater than $10,000. Thus, if an investor buys $10,000 worth of crypto from an exchange, the investor has to pay tax on crypto in Canada.
The CRA is registered with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). This institute handles financial institutions and inspects tax evasion and money laundering. As a result, if a crypto exchange is registered with FINTRAC, they have to provide their users’ address proof and government-issued ID to the CRA as per Canadian crypto tax laws. The majority of crypto exchanges in Canada are working with FINTRAC and CRA.
Business Income Or Capital Gains
Before understanding business income or capital gains, we must learn what disposition is.
So, what is a disposition?
The process of selling, disposing, and donating crypto assets is known as disposition. In most cases, holding cryptocurrency isn’t considered taxable, but the following cases are an exception:
- Selling or gifting cryptocurrency
- Trading or exchanging cryptocurrency (from one crypto to another)
- Conversion of crypto to fiat currency (e.g., Bitcoin to Canadian dollars)
- Buying goods and services using cryptocurrencies
Now that we know which crypto events are taxable, we must understand if the gain is categorized as business income or a capital gain? You can derive this by determining the kind of income you have. The following are the four indicators that you’re operating a business:
- Operating in a commercial manner
- Developing company plan and collecting capital assets or inventory
- Publicizing products and services
- Plan to generate profit
For example, some cryptocurrency businesses are cryptocurrency trading, cryptocurrency mining, and cryptocurrency exchanging.
Reporting Income And Capital Gains
When you’re selling or disposing of crypto assets as a part of your business, your gains will qualify as business revenue and not capital gains. Buying crypto with the motive of selling it for a profit may qualify as business revenue since it might be deemed commerce.
Exchanging Crypto
The barter transaction rules apply in most cases while disposing of crypto and purchasing others. The value of crypto that you receive has to be converted to the respective fiat currency, in this case, Canadian dollars. The transaction is termed as disposal and has to be recorded on tax returns. The profit or loss that is reported is categorized as commercial profit or capital profit (or loss).
Mining Cryptocurrencies
In Canada, crypto law states that mining cryptocurrency is also considered taxable, but it depends on a few factors.
Cryptocurrencies can be obtained in one of the two ways:
- Buying through crypto exchange
- Earning through mining
Mining is the process of solving complex mathematical problems with specialized computers to verify crypto transactions. Cryptocurrency transactions will be included in blocks, and miners will try to estimate a number that will result in a legitimate block in a public ledger called a blockchain. A miner will receive a reward for successfully verifying a block.
The tax implications of mining cryptocurrency in Canada are similar to that of the United States and are dependent on whether the mining operation is a personal hobby or a commercial activity.
Hobby miners’ rewards are not for business, but solely for entertainment. On the other hand, commercial miners generate sufficient profits and are taxed accordingly.
Crypto As Capital Gain Or Inventory
When crypto is considered as inventory, you can adopt one of the two techniques for valuing inventory that is constant from year to year:
- Cost when acquired or fair market value—consider the lower one
- The fair market value of inventory at the end of the year
Tax on Crypto in Canada
In Canada, the rate of capital gains tax is not specific, in fact, there is no long-term or short-term capital gains tax rate. The gains made on crypto investments are taxed the same as Provincial Income Tax and Federal Income Tax.
Federal Income Tax Rates of 2021 and 2022:
| Income (2021) ($) | Income (2022) ($) | Tax Rate (%) |
|---|---|---|
| On the initial $49,020 of your taxable income | On the initial $50,197 of your taxable income | 15 |
| 49,021 – 98,040 | 50,197 – 100,392 | 20.5 |
| 98,041 – 151,978 | 100,392 -155,625 | 26 |
| 151,979 – 216,511 | 155,625 – 221,708 | 29 |
| 2,16,512 | 2,21,708 | 33 |
Below are the Income Tax rates as per provinces:
Labrador and Newfoundland Provincial Tax Rate
| Tax Rate (2021) (%) | Income (2021) ($) | Tax Rate (2022) (%) | Income (2022) ($) |
|---|---|---|---|
| 8.7 | On the initial $38,080 of your taxable income | 8.7 | On the initial $39,147 of your taxable income |
| 14.5 | 38,081 – 76,161 | 14.5 | 39,147 – 78,294 |
| 15.8 | 76,161 – 135,973 | 15.8 | 78,294 – 139,780 |
| 17.3 | 135,973 – 190,363 | 17.8 | 139,780 – 195,693 |
| 18.3 | 1,90,363 | 19.8 | 195,693 – 250,000 |
| – | – | 20.8 | 250,000 – 500,000 |
| – | – | 21.3 | 500,000 – 1,000,000 |
| – | – | 21.8 | 10,00,000 |
Prince Edward Island Provincial Tax Rate
| Income (2021) ($) | Income (2022) ($) | Tax Rate (%) |
|---|---|---|
| On the initial $31,984 of your taxable income | On the initial $31,984 of your taxable income | 9.8 |
| 31,984 – 63,969 | 31,984 – 63,969 | 13.8 |
| 63,969 | 63,969 | 16.7 |
Nova Scotia Provincial Tax Rate
| Income (2021) ($) | Income (2022) ($) | Tax Rate (% |
|---|---|---|
| On the initial $29,590 of your taxable income | On the initial $29,590 of your taxable income | 8.79 |
| 29,590 – 59,180 | 29,590 – 59,180 | 14.95 |
| 59,180 – 93,000 | 59,180 – 93,000 | 16.67 |
| 93,000 – 150,000 | 93,000 – 150,000 | 17.5 |
| 1,50,000 | 1,50,000 | 21 |
New Brunswick Provincial Tax Rate
| Income (2021) ($) | Income (2022) ($) | Tax Rate (% |
|---|---|---|
| On the initial $43,835 of your taxable income | On the initial $44,887 of your taxable income | 9.68 |
| 43,835 – 87,671 | 44,887 – 89,775 | 14.82 |
| 87,671 – 142,534 | 89,775 – 145,955 | 16.52 |
| 142,534 – 162,383 | 145,955 – 166,280 | 17.84 |
| 1,62,383 | 1,66,280 | 20.3 |
Ontario Provincial Tax Rate
| Income (2021) ($) | Income (2022) ($) | Tax Rate (% |
|---|---|---|
| On the initial $45,142 of your taxable income | On the initial $46,226 of your taxable income | 5.05 |
| 45,142 – 90,287 | 46,226 – 92,454 | 9.15 |
| 90,287 – 150,000 | 92,454 – 150,000 | 11.16 |
| 150,000 – 220,000 | 150,000 – 220,000 | 12.16 |
| 2,20,000 | 2,20,000 | 13.16 |
Manitoba Provincial Tax Rate
| Income (2021) ($) | Income (2022) ($) | Tax Rate (% |
|---|---|---|
| On the initial $33,723 of your taxable income | On the initial $34,431 of your taxable income | 0.8 |
| 33,723 – 72,885 | 34,431 – 74,416 | 12.75 |
| 72,885 | 74,416 | 17.4 |
Saskatchewan Provincial Tax Rate
| Income (2021) ($) | Income (2022) ($) | Tax Rate (% |
|---|---|---|
| On the initial $45,677 of your taxable income | On the initial $46,773 of your taxable income | 10.5 |
| 45,677 – 130,506 | 46,773 – 133,638 | 12.5 |
| 1,30,506 | 1,33,638 | 14.5 |
Alberta Provincial Tax Rate
| Income (2021) ($) | Income (2022) ($) | Tax Rate (% |
|---|---|---|
| On the initial $131,220 of your taxable income | On the initial $131,220 of your taxable income | 10 |
| 131,220 – 157,464 | 131,220 – 157,464 | 12 |
| 157,464 -209,952 | 157,464 – 209,952 | 13 |
| 209,952 – 314,928 | 209,952 – 314,928 | 14 |
| 3,14,928 | 3,14,928 | 15 |
British Columbia (B.C.) Provincial Tax Rate
| Income (2021) ($) | Income (2022) ($) | Tax Rate (% |
|---|---|---|
| On the initial $42,184 of your taxable income | On the initial $43,070 of your taxable income | 5.06 |
| 42,184 – 84,369 | 43,070 – 86,141 | 7.7 |
| 84,369 – 96,866 | 86,141 – 98,901 | 10.5 |
| 96,866 – 117,623 | 98,901 – 120,094 | 12.29 |
| 117,623 – 159,483 | 120,094 – 162,832 | 14.7 |
| 159,483 – 222,420 | 162,832 – 227,091 | 16.8 |
| 2,22,420 | 2,27,091 | 20.5 |
Yukon Provincial Tax Rate
| Income (2021) ($) | Income (2022) ($) | Tax Rate (% |
|---|---|---|
| On the initial $49,020 of your taxable income | On the initial $50,197 of your taxable income | 6.4 |
| 49,020 – 98,040 | 50,197 – 100,392 | 9 |
| 98,040 – 151,978 | 100,392 – 155,625 | 10.9 |
| 151,978 – 216,511 | 155,625 – 221,708 | 12.8 |
| 216,511 – 500,000 | 221,708 – 500,000 | 12.96 |
| 5,00,000 | 5,00,000 | 15 |
Northwest Territories Provincial Tax Rate
| Income (2021) ($) | Income (2022) ($) | Tax Rate (% |
|---|---|---|
| On the initial $43,396 of your taxable income | On the initial $45,462 of your taxable income | 5.9 |
| 44,396 – 88,796 | 45,462 – 90,927 | 8.6 |
| 88,796 – 144,362 | 90,927 – 147,826 | 12.2 |
| 1,44,362 | 1,47,826 | 14.05 |
Nunavut Provincial Tax Rate
| Income (2021) ($) | Income (2022) ($) | Tax Rate (% |
|---|---|---|
| On the initial $46,740 of your taxable income | On the initial $47,862 of your taxable income | 4 |
| 46,740 – 93,480 | 47,862 – 95,724 | 7 |
| 93,480 – 151,978 | 95,724 – 155,625 | 9 |
| 1,51,978 | 1,55,625 | 11.5 |
Quebec Provincial Tax Rate
| Income (2021) ($) | Income (2022) ($) | Tax Rate (% |
|---|---|---|
| On the initial $45,105 of your taxable income | On the initial $46,295 of your taxable income | 15 |
| 45,105 – 90,200 | 46,295 – 92,580 | 20 |
| 90,200 – 109,755 | 92,580 – 112,655 | 24 |
| 1,09,755 | 1,12,655 | 25.75 |
Keeping Records
Whatever crypto transaction you make, it is recommended that you preserve a record of the cryptos you acquire. A lot of crypto software helps you with this record keeping as this might be a rather complicated task. Apart from the crypto you acquire, you must also keep a record of your supporting documents for at least six years.
If you’re involved in buying and selling crypto, you must keep a record of the following:
- Transaction date
- Buy or transfer receipt
- Value of the crypto in fiat (Canadian dollar) during purchase or transfer
- Record and address of the crypto wallet
- Transaction description
- Additional costs involved
If you’re involved in crypto mining, you must keep a record of the following:
- Mining hardware receipt
- Additional expenses such as electricity, mining pool fees, maintenance cost, etc.
- Record of the mining pool and record
GST/HST
GST/HST is applied whenever a taxable product/ service is being traded. It is calculated on the crypto’s FMV or the fair market value when the transaction took place.
The Bottom Line
Anyone who has or wants to acquire bitcoin needs to understand how the Canadian government regulates cryptocurrencies as securities. It provides some extra peace of mind knowing that firms who provide bitcoin are held accountable.
ZenLedger easily calculates your crypto taxes and also finds opportunities for you to save money and trade smarter. Get started for free now or learn more about our tax professional prepared plans!
Canadian Crypto Tax Laws FAQs
1. Is crypto taxable in Canada?
2. How do I know if my crypto gains are business gains?
3. What is a disposition?
Disclaimer: This material has been prepared for informational purposes only, and is not intended to provide tax, legal or financial advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction.
