Understanding Crypto Taxation in Canada
The Canada Revenue Agency (CRA) treats cryptocurrency as property, not currency, meaning profits from crypto transactions are subject to taxation. Whether you’re trading, mining, or receiving crypto as payment, failing to report income can lead to penalties. This guide breaks down exactly how to report crypto income in Canada accurately and avoid common pitfalls.
Types of Taxable Crypto Transactions
You must report these crypto activities to the CRA:
- Selling crypto for fiat currency (e.g., converting Bitcoin to CAD)
- Trading between cryptocurrencies (e.g., swapping Ethereum for Solana)
- Using crypto to purchase goods/services (treated as a disposal at fair market value)
- Earning mining or staking rewards (taxable as business or property income)
- Receiving airdrops or hard forks (valued at CAD when received)
- Crypto payments for freelance work or employment
Calculating Crypto Gains and Losses
For capital assets (like long-term holdings), use this formula:
Capital Gain = Proceeds of Disposition – Adjusted Cost Base (ACB) – Expenses
Only 50% of capital gains are taxable. For business income (e.g., frequent trading), 100% is taxable. Track these key metrics:
- Adjusted Cost Base (ACB): Average cost per unit including acquisition fees.
- Proceeds of Disposition: Fair market value in CAD when disposing of crypto.
- Out-of-Pocket Expenses: Transaction fees, mining equipment costs.
Record-Keeping Requirements
Maintain detailed records for six years after filing. Essential documents include:
- Dates and values (in CAD) of all transactions
- Wallet addresses and exchange records
- Receipts for purchases and sales
- Mining/staking logs and associated costs
- Calculations for ACB and capital gains
Reporting Crypto on Your Tax Return
Step 1: Determine Income Type
Classify as capital gains (infrequent trades) or business income (frequent/strategic trading).
Step 2: File the Correct Forms
Use Schedule 3 for capital gains/losses and Form T2125 for business income. Report totals on Line 13000 (capital gains) or Line 13499 (business income) of your T1 return.
Step 3: Report Losses
Capital losses offset capital gains; excess losses carry forward. Business losses reduce total income.
Penalties for Non-Compliance
Failure to report crypto income may result in:
- Interest on unpaid taxes (currently 10% annually)
- Late-filing penalties (5% + 1%/month of balance owed)
- Gross negligence fines (50% of evaded tax)
- Criminal charges in severe cases
Frequently Asked Questions (FAQs)
- Do I need to report crypto if I haven’t sold?
- Only if you earned income (e.g., staking rewards) or disposed of crypto (trades/spends). Holding isn’t taxable.
- How do I report crypto losses?
- Capital losses go on Schedule 3. Business losses on Form T2125. Both reduce taxable income.
- Is small crypto activity exempt?
- No. All taxable transactions must be reported regardless of amount. Under C$50, you may omit Schedule 3 but must still declare income.
- Can I use crypto tax software?
- Yes! Tools like Koinly or CoinTracker automate ACB calculations and generate CRA-compliant reports. Ensure they support Canadian tax rules.
- Are NFTs taxable?
- Yes. They’re treated like other crypto assets—profits from sales or trades are subject to capital gains tax.
- What if I used a foreign exchange?
- You still owe Canadian taxes. Report all global income and convert values to CAD using Bank of Canada rates or exchange rates at transaction time.
Always consult a crypto-savvy accountant for complex situations. The CRA actively audits crypto activity, so accuracy is crucial to avoid penalties.
