What you should know about cryptocurrency tax in Canada

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How to report cryptocurrencies on your tax return

If you have determined that your crypto earnings are considered business income, you will need to complete Form T-2125, Declaration of Business or Professional Activities. You may also want to consult with a tax professional – if you run a cryptocurrency business, you should be able to deduct a variety of business expenses, such as subscriptions, memberships, your internet connection, and expenses related to your home office. . “Only the business portion can be deducted,” says Maneisha, “not portions for personal use.”

If your crypto business income (after expenses) is negative, it is considered a non-capital loss, which can be deducted from any other source of income you had that year (including employment or investment income) to reduce your taxes. If you don’t have enough total income to take the loss deduction, you can carry forward non-capital losses up to three years and apply them to prior years’ tax returns, or carry them forward up to 20 years to reduce your taxable income in the future. future.

Capital gains or losses are reported on Schedule 3 of your personal income tax return. Please note that, as with other investments, capital losses can only be used to offset capital gains. Those earnings do not need to come from other cryptocurrency investments. “You can take advantage of losses in one sector to offset gains in another,” says Storozuk.

Finally, be aware of the shallow loss rule, also known as the 30-day rule. “If you buy cryptocurrency, or stocks, and sell them at a loss, and you or an affiliated person, such as your spouse, buys them back within 30 days, then it’s not considered a loss for tax purposes,” says Maneisha.

Is there a way to shield crypto profits from income tax?

In a word, no. “You cannot hold cryptocurrencies in registered tax-sheltered accounts such as RRSPs and TFSAs,” says Maneisha. If you want to speculate on crypto markets within such accounts, you can opt for Cryptocurrency-backed ETFs and other related investments instead.

Are NFTs also taxable?

Yes, non-fungible tokens (NFTs) they are taxable, and the CRA will consider the same factors as when evaluating crypto activity. Again, keep detailed records of your transactions and consult a tax professional if you need guidance.

If you have never reported your crypto earnings to the CRA, you may have to pay unpaid taxes, penalties, and/or interest on your capital gains or business income. Voluntarily correcting your tax matters can help you avoid or reduce these fees.

One last thing to keep in mind as you prepare your taxes: The CRA will not accept payments in cryptocurrencies. So if you owe taxes this year, make sure you have enough cash on hand to remit your payment. “That’s been shocking to a lot of people I talk to who have all of their wealth/liquidity tied up in crypto,” says Maneisha. “They didn’t realize they would have to withdraw money to pay their taxes.”