top-Accountant_edited.png

Cryptocurrency Taxation

bg-services.png
Accountant_edited.jpg

Corporate Taxes & Accounting Services

Cryptocurrency Taxation

Cryptocurrency is a digital currency that generates, exchanges, and transfers currency units without a central bank’s assistance. Unlike cash transactions, the transfer of funds is not verified by a bank or government agency. Instead, these virtual transactions are recorded in a “blockchain,” a digitized public ledger. The currency’s units are known as “coins.”

In Notice 2014-21, the CRA addressed the taxation of cryptocurrency transactions, stating that bitcoin is recognized as property for federal tax purposes. As a result, basic tax principles that apply to property transactions must also apply to cryptocurrency exchanges. Taxpayers must recognize gain or loss on the exchange of cryptocurrencies for cash or other property, according to Notice 2014-21. As a result, every time bitcoin is sold or used to buy goods or services, a profit or loss is recorded. The types of transactions and the amount of time the cryptocurrency was held determine the recorded gain or loss. The CRA treats cryptocurrency earnings from exchanging coins held as capital assets as investment income, and capital gains regulations apply. A taxpayer must declare a capital gain if they sell a coin stake for cash. A coin holding kept for less than one year is considered a short-term capital gain taxed at ordinary rates; a position held for more than one year is considered a long-term capital gain taxed at capital gains rates.

Yes, the value of your Bitcoin is taxable. For tax reasons, the CRA considers cryptocurrency holdings to be “property,” which means your virtual currency is taxed similarly to any other assets you own, such as stocks or gold. When you utilize crypto as a medium of trade, things start to become taxed. This can include selling your cryptocurrency for Canadian dollars, also known as FIAT currency, swapping one cryptocurrency for another — such as buying Ethereum with Bitcoin — or using bitcoin to pay for products and services.

A taxable transaction occurs when an investment is sold or exchanged for another investment. If you own your coins for less than a year before spending or selling them, any profits will be classified as short-term capital gains and will be taxed at your regular income tax rate. If you’ve had your crypto for a year or longer, any profits are long-term capital gains, which are taxed at a reduced rate based on your yearly income. Whether you earn cryptocurrencies by mining them or receiving them as a promotion or payment for goods or services, it counts as ordinary taxable income. At your ordinary income tax rate, you owe tax on the entire value of the cryptocurrency on the day you got it.

Furthermore, depending on how long you’ve had cryptocurrency from these activities, you may face short- or long-term capital gains taxes on the profits if you spend or sell them for more than their worth when you initially acquired them. Cryptocurrency taxation and reporting are not as basic as they appear. For starters, Bitcoin’s price volatility makes it difficult to assess the cryptocurrency’s fair worth in purchase and sale transactions. It’s also tough to figure out which accounting system is best for cryptocurrency taxation. Although Last In, FCRAt Out (LIFO) and Highest In, FCRAt Out (HIFO) have the potential to lower taxes, the CRA has only approved a handful of cases of their use by crypto dealers. The most often used method for cryptocurrency accounting is fCRAt in, fCRAt out.

Corporate Taxes & Accounting Services