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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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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.
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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.
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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.
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.
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.
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.
Pay your taxes. Pay any tax you owe by 2 May 2022. You can find details on the various payment methods available here.
Federal and Provincial Tax Rates
CRA Guidance for Cryptocurrency