The Canadian Revenue Agency made it clear through an official announcement that Canadian taxpayers would be liable for taxes on crypto. However, the real question that continues to boggle crypto enthusiasts is – how much tax do I pay on crypto gains? To begin with, one has to understand that the taxation on cryptocurrencies depends essentially on what you use them for – business income or capital gains.
Cryptos are taxed just like any other commodity in Canada, for it is not yet considered a legal currency. If profits from your crypto dealings are categorized as business income, 100% of it would be taxable. On the other hand, only 50% of it would be taxable if it falls under the head of capital gains. Therefore, the first step to understanding how much tax you need to pay on crypto gains is to decide upon the category of crypto profits.
When is Cryptocurrency Taxable?
Based on the revisions on cryptocurrency taxation presented by the Senate in 2014, the Canadian Revenue Agency published a detailed guide to help taxpayers in the country understand the nitty-gritty of the same. According to this guide, a disposition of cryptocurrency results in taxable consequences, including:
- Selling crypto for fiat currency
- Trading one cryptocurrency for another
- Using cryptocurrency for the purchase and sale of goods and services
- Making a sale or gift of crypto
- Cashing out cryptocurrencies
No taxes are charged for holding, buying, or transferring cryptos from one wallet to another. The CRA highlights the importance of using a “reasonable method” for calculating the value of cryptocurrency in a transaction if it is already obvious. Proper records must be maintained at all times on the derivation of value and logic used so that it can be presented to the authorities whenever they ask for it. This is why the answer of most experts to the frequently asked question – what to consider when buying cryptocurrency – is the rules and regulations surrounding its taxation and process, calculations and logic surrounding the same.
Differentiating between Business Income and Capital Gains
Cryptocurrency disposition falls under the head of business income whenever you are using cryptos for commercial reasons or in a commercially viable way. This could include using cryptos to promote a product or service, making or intending to make a profit whether in the short- or long-term or using cryptocurrencies for business activities, such as preparing business plans and acquiring capital assets and inventories.
Day trade crypto dealings, crypto mining, and exchanging one cryptocurrency with another leading to a gain or loss fall are all activities leading to a gain or loss and may fall under the category of business income if carried out with such intention. As already mentioned, this income is 100% taxable.
If the sale of crypto does not fall within the category of carrying out a business and the amount sells for more than its original purchase price or adjusted cost base, the taxpayer is then said to have realized a capital gain. These gains are counted along with income from other sources in the year, with 50% of these gains subjected to taxation. Finally, the total amount of tax one pays depends on the respective tax bracket they fall under.
Canada Income Tax Rates 2021
Tax brackets and tax rates are subject to change, and therefore taxpayers must always stay updated with the latest figures for the ongoing tax year. The following is a breakdown of tax levels during the current tax year:
- 15% on the first $49,020 of taxable income, plus
- 20.5% on the next $49,020 of taxable income (on the portion of taxable income over $49,020 up to $98,040), plus
- 26% on the next $53,939 of taxable income (on the portion of taxable income over $98,040 up to $151,978), plus
- 29% on the next $64,533 of taxable income (on the portion of taxable income over $151,978 up to $216,511), plus
- 33% of taxable income over $216,511
The Bottom Line
In Canada, your earnings will attract variable rates of taxation depending on the type of income category and tax bracket your profits fall under. To be honest, crypto taxation is a continuously evolving and dynamic affair, and only an expert will be able to guide you best on the matter based on the current status of rules, regulations, values, and records. With Secure Digital Markets and its team of experienced agents by your side, you no longer need to worry about scurrying for answers on how crypto is taxed in Canada. Book a session with our expert and get all your answers solved immediately. Get in touch today!