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Crypto Tax Canada Guide for 2022

You may owe tax if you have used cryptocurrency over the last year. It’s paramount that you report any crypto gains and income accurately to the Canada Revenue Agency (CRA)—otherwise you could find yourself facing a financial penalty.

Working out whether you owe tax and how much you owe may seem complicated, but we’re going to take you through the CRA’s guidance on crypto—as well as some tips on how to make calculating your taxes easy this tax season.

Do I Need to Pay Tax on Crypto in Canada?

The nature of your crypto activities and how much you make from them will dictate whether or not you need to pay any tax. We’re going to take a look at which activities are taxable and which tax they trigger in more detail below.

Investing and Trading  

You don’t need to pay any tax when you buy crypto, but you will need to pay Capital Gains Tax when you make a capital gain (profit) from disposing of it. Selling your crypto, swapping it for another cryptocurrency, gifting it, or spending it on goods or services all count as disposals.

If your profits from trading or investing are considered business income, you will need to pay Income Tax on them instead. Profits are more likely to be considered business income the larger they are and the more active you are in crypto trading. The CRA will decide this on a case by case basis.

Staking, Lending, and Other DeFi Activities

Although the CRA is yet to provide any specific guidance on staking and other DeFi activities, the guidance they have provided suggests that profits made will be subject to Income Tax, based on the fair market value of the tokens on the date you receive them.

If you then sell or otherwise dispose of these tokens, this will create a capital gain and trigger Capital Gains Tax.

Getting Paid in Crypto 

If your salary is paid in crypto, you will need to pay Income Tax on it. Rewards received from activities such as play-to-earn games and learn-to-earn campaigns may also be subject to Income Tax.

Mining 

If you mine crypto as a hobby, you won’t need to pay any tax when you receive mining rewards, but you will need to pay Capital Gains Tax when you dispose of them. The full amount you receive will be taxed as the cost basis of mined coins is zero.

If, on the other hand, you run a mining operation as a business, you will need to pay Income Tax on the tokens you receive.

Airdrops

If you are not trading as a business, any airdrops you receive are unlikely to be considered business income, although the CRA hasn’t released any specific guidance on this matter. This means that receiving an airdrop is likely to be tax-free, but you will still have to pay Capital Gains Tax when you dispose of airdropped crypto.

NFTs 

Once more, there is no specific guidance from the CRA on non-fungible tokens. However, buying an NFT is likely to be considered a disposal of the crypto used to buy it and so would trigger Capital Gains Tax. Selling an NFT will also lead to Capital Gains Tax on any profit made.

Meanwhile, selling an NFT that you have created yourself is likely to be viewed as a business activity and so will result in Income Tax.

Claimable Expenses

Some costs are considered claimable expenses and so can be deducted from your profits before any tax is applied.

  • Gas fees related to buying or selling crypto

  • Margin fees or interest payments from crypto margin trading

  • Mining costs if mining as a business

Fees associated with moving crypto between your wallets are not considered claimable expenses.

How Much Tax Do I Need to Pay?

The amount of tax you need to pay on your income and capital gains in Canada depends on the size of your income. We’ll look at the tax rates in more detail below.

Income Tax

Any income you generated from crypto should be added to your other income to determine which tax rates apply to you. The Federal Income Tax rates for 2021 are listed below.

Taxable Income                          Income Tax Rate

Up to $49,020                              15%

$49,021 to $98,040                      20.5%

$98,041 to $151,978                    26%

$151,979 to $216,511                  29%

$216,512 and above                    33%

Each province and territory charges its own Income Tax on top of these federal tax rates. The Provincial Income Tax rates for 2021 can be viewed here.

Capital Gains Tax

There aren’t separate tax rates for capital gains. Your capital gains will instead be taxed at the same Federal and Provincial Income Tax rates detailed above, according to the size of your income. However, only 50% of your capital gains will be taxed at these rates—the other half is tax-free.

How Do I Calculate My Taxes?

You’ll need to keep track of all the income and capital gains you generate from crypto during the year in order to work out which tax bracket you are in. It is important to get this right if you want to avoid a financial penalty for misreporting.

Tax software makes this an easy task. All you have to do is connect your wallets and exchanges to the software and it will do all the hard maths for you and generate a report that clearly lays out your income, expenses, and capital gains and losses for the year.

Your tax software will keep all the necessary records and update them automatically, even if your exchange loses or deletes your transaction data, which can sometimes happen. If you opt instead to keep records manually, the CRA requires you to record the following information about your cryptocurrency transactions.

  • Date of transaction

  • Value of crypto at the time of transaction in CAD

  • Description of the transaction and the other party (such as their wallet address)

  • Exchange records

  • Wallet records and cryptocurrency addresses

  • Receipts for purchase or transfer of crypto

  • Accounting and legal costs

  • Software costs for managing your taxes

If you are a miner, you will also need to keep records of your mining pool details and receipts for mining hardware and other expenses such as power, maintenance costs, and mining pool fees.

Tax Software

1. CoinTracker

CoinTracker is our top choice for calculating your crypto and NFT taxes. Its clear layout makes it easy to see your portfolio allocation and investment performance in real time, while CoinTracker’s cost basis optimisation and tax-loss harvesting tools will help you save money year-round.

2. Koinly

Koinly makes it simple to import your trades, track your portfolio, and generate tax reports. With over 300 wallets and exchanges supported and a variety of price tiers available—including a free version—Koinly is popular with a wide range of crypto traders and investors.

3. TokenTax

TokenTax provides a full suite of crypto tax services, with access to teams of experts and deep industry knowledge as well as their tax accounting software. There are different plans to suit hobbyists and professionals, with a tax-loss harvesting dashboard and all the tax forms you need.

How to Pay Crypto Taxes in Canada

To pay the right amount of tax and avoid a penalty, just follow these simple steps. The Canadian tax year is the same as the calendar year, and each year you will need to file a return and pay tax for the previous year.

  1. Keep accurate records. Record all the information for your transactions that is required by the CRA. If you use tax software, you don’t need to do anything as it will keep records for you automatically.

  2. Complete your tax return. Report any crypto income on Tax Return T1 and any capital gains or losses on the Schedule 3 Form. Tax software will save you time by generating a tax report for you.

  3. Submit your tax return. The usual deadline for filing your return is 30 April, but as this falls on a Saturday, the deadline will be 2 May 2022. If you or your spouse/common-law partner are self-employed, the deadline is 15 June 2022. You can send your return by post or online.

  4. Pay your taxes. Pay any tax you owe by 2 May 2022. You can find details on the various payment methods available here.

Frequently Asked Questions

  1. No. You only need to pay Capital Gains Tax when you sell your crypto or otherwise dispose of it. This means you can buy crypto, hold onto it, and transfer it between your own wallets without paying any tax.

  2. Yes. The CRA works with a number of crypto exchanges. They haven’t revealed exactly which ones, but it is likely that the major exchanges share customer information with the CRA. The CRA will also be notified if you make a transaction larger than $10,000.

    This means there is a good chance that the CRA knows about your crypto activity, so the safest thing to do is report your activities accurately to avoid a penalty.

  3. You can offset 50% of your capital loss for the year against your capital gain for the year. Just report any losses on your Schedule 3 Form. If this doesn’t cover all your losses for the year, you can carry the remainder forward and offset it against your gains in future years.

  4. You can’t avoid tax completely but there are a number of ways to minimise the amount of tax you owe. You could invest in a Retirement Savings Plan as RSP contributions are tax-deductible. You could also use a Tax-Free Savings Account to invest in a crypto ETF. This wouldn’t be a direct crypto investment but Bitcoin ETFs track the price of Bitcoin and any profits will be tax-free.

    You can earn tax credits by donating crypto and use them to offset your taxes. Perhaps the simplest way to reduce your tax bill, however, is to use tax software to track and harvest unrealised losses.

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