Cryptocurrency Tax Guide Canada: CRA Rules Explained

Capital Gains vs Business Income

The first question is whether your crypto activity is treated as capital gains or business income:

Capital Gains Treatment (Most Individuals)

• Only 50% of gains are taxable (66.67% above $250,000 as of June 25, 2024)
• Losses can offset other capital gains
• Unused losses can be carried back 3 years or forward indefinitely

Typical for: Investors who buy and hold, occasional traders

Business Income Treatment

• 100% of profits are taxable
• Losses deductible against other income
• Must pay CPP contributions on self-employment income

Typical for: Day traders, crypto mining operations, people who trade crypto as their primary income source

Taxable Crypto Events

The following trigger a taxable event:

Definitely Taxable

• Selling crypto for CAD: Gain/loss = Sale price - Adjusted cost base (ACB)
• Trading crypto for another crypto: Treated as selling one and buying the other
• Using crypto to buy goods/services: Deemed disposition at fair market value
• Gifting crypto: Deemed disposition at fair market value (except to spouse)

Income Events

• Mining crypto: Fair market value when received is income
• Staking rewards: Fair market value when received is income
• Airdrops: Fair market value when received is income
• Crypto earned from work: Employment or business income

Not Taxable

• Buying crypto with CAD: No tax until you dispose of it
• Transferring between your own wallets: Not a disposition
• HODLing: Unrealized gains are not taxed

Calculating Your Adjusted Cost Base (ACB)

ACB is crucial for calculating gains/losses. Canada uses the weighted average cost method:

ACB Calculation Example

Crypto-to-Crypto Trades

When you trade one crypto for another, it's TWO transactions:

1. Deemed sale of the first crypto at fair market value
2. Purchase of the second crypto at fair market value

Example

You trade 1 ETH (ACB $2,000) for 0.05 BTC when ETH is worth $3,000:

• Capital gain on ETH: $3,000 - $2,000 = $1,000
• ACB of new BTC: $3,000 (add to existing BTC pool)

DeFi, Staking, and Yield Farming

Staking Rewards

The CRA hasn't issued specific guidance, but the general consensus is:

• Staking rewards are income at fair market value when received
• Your ACB for the received tokens is the income amount
• Later sale may result in additional capital gain/loss

Liquidity Pool Rewards

Similar treatment to staking - income when received, with subsequent capital gains treatment on disposal.

Interest from Lending

Interest received in crypto is income at fair market value when received.

NFTs (Non-Fungible Tokens)

NFTs are treated similarly to other crypto:

• Buying an NFT with crypto triggers capital gains on the crypto used
• Selling an NFT triggers capital gains (sale price minus ACB)
• If you create and sell NFTs, it's likely business income

Reporting Crypto on Your Tax Return

Capital Gains

• Report on Schedule 3 (Capital Gains)
• Include proceeds, ACB, and gain/loss for each disposition
• Aggregate gains go to Line 12700

Business Income

• Report on T2125 (Business Income)
• Include gross revenue and deductible expenses

Income from Mining/Staking

• If hobby: Report on Line 13000 (Other Income)
• If business: Report on T2125

Record Keeping

You MUST keep detailed records for 6 years:

• Date of each transaction
• Description (buy, sell, trade, etc.)
• Quantity of crypto
• Fair market value in CAD at time of transaction
• Wallet addresses involved
• Exchange transaction records

Tools for Tracking

Consider using crypto tax software like:

• Koinly
• CoinTracker
• Coinpanda
• CryptoTaxCalculator

Lost or Stolen Crypto

If your crypto is lost or stolen:

• You may be able to claim a capital loss
• Must be able to prove the loss occurred
• CRA may require police report or exchange documentation
• Cannot claim loss for coins you still have access to (forgotten password ≠ lost)

Key Takeaways

• Crypto is taxed as property, not currency, in Canada
• Most individuals pay capital gains tax (50% inclusion rate)
• Every crypto-to-crypto trade is a taxable event
• Use the adjusted cost base method to calculate gains
• Mining, staking, and airdrops are income when received
• Keep detailed records of ALL transactions
• Report everything - CRA has exchange data