Is a Declaration of Cryptocurrency Required in Canada?

Cryptocurrency Tax in Canada
Crypto tax Canada – CRA – Cryptocurrency Tax in Canada

Published by FrankNez Team.

Cryptocurrency transactions are taxed by the Canada Revenue Agency (CRA). So, the declaration of cryptocurrency transactions is required by the law.

Cryptocurrency is a relatively new concept that needs tax rules to ensure Canadians correctly understand how to comply with their tax duties. In 2014, the Senate examined cryptocurrency taxation and proposed steps to assist Canadians in understanding how to file their taxes correctly.

In this article, we will know if you need to declare your cryptocurrency and its income to the CRA.

But first, let us talk about what the Canada Revenue Agency or CRA is!

What Is the Canada Revenue Agency (CRA)?

CRA Canada Revenue Agency

The Canada Revenue Agency (CRA) is a federal agency charged with collecting taxes and enforcing tax regulations on behalf of the Canadian government and several of Canada’s provinces and territories.

Additionally, the CRA administers many social and economic benefit and incentive programs via the tax system and international trade regulations.

The Canada Revenue Agency (CRA) is Canada’s counterpart of the Internal Revenue Service (IRS) of the United States.

The CRA was initially known as the Canada Customs and Revenue Agency (CCRA) until 2003, when the agency’s customs and revenue operations were divided into two distinct entities.

This body is the authoritative source of information on current Canadian tax laws and their interpretation and application. It’s responsible for collecting taxes from Canadians and supervising the social services financed by tax funds.

The CRA is responsible for administering several taxes, including personal income tax, trust income tax, company income tax, excise tax, and partnership income taxes.

Crypto Mining

Crypto mining is earning digital money by resolving complex computer problems. However, to solve this sort of problem, a lot of processing power is needed, which might lead to high electricity bills.

Mining for personal or non-commercial reasons can be considered a non-taxable pastime by the CRA. However, commercial or business-related mining should be recorded as income.

Also, you will need an e-wallet to store and trade your cryptocurrencies. Several cryptocurrency platforms like Coinsmart, Binance, and Bitbuy are available in Canada.

Some of them are regulated like these Canadian platforms. These platforms will also help keep track of your crypto expenses for taxation purposes.

CRA Taxes on Cryptocurrency Transaction

CRA Taxes

Bitcoin prices increased significantly in 2021, prompting many Canadians to invest in Bitcoin and other cryptocurrencies. And experts predict it can increase more by the end of 2022.

While cryptocurrencies such as Bitcoin are not considered legal tender in Canada, they do not relieve users from Canadian tax duties.

In Canada, cryptocurrency is seen as a commodity. This implies that any profits or losses derived from the purchase and sale of Bitcoin or other cryptocurrencies are taxed.

Moreover, you are taxed when you use cryptocurrency in the real world. So, for example, when you sell it or use it to make a purchase, it will be considered a taxable transaction. 

Therefore, if you acquired cryptocurrency and did not use it, you will not be required to pay taxes. But you should still keep track of your transactions if you use cryptocurrency as it then becomes taxable.

Declaration of Cryptocurrency to CRA

Declaration of cryptocurrency to CRA

Cryptocurrencies are taxed similarly to traditional income. As a result, you must declare your cryptocurrency with the CRA.

Profits and losses from the purchase and sale of cryptocurrencies must be recorded on a tax return as part of income. Because governments do not issue cryptocurrencies, they are classified as commodities by the Canada Revenue Agency (CRA).

Utilizing cryptocurrencies to pay for products or services is considered a barter transaction. Therefore, it is subject to the Income Tax Act’s barter restrictions.

Bitcoin and other cryptocurrencies are included in a transaction’s taxable income. Therefore, the transaction must be reported for federal tax reasons.

Taxes on Buying and Selling Cryptocurrency 

Cryptocurrencies, like any other investment, are subject to taxation. 50% of the profits are added to your taxable income for the year.

For instance, if you purchased cryptocurrencies worth $1,000 and sold them for $1,500, you have earned $500. Thus, 50 percent of that sum ($250) would be added to and taxed as part of your yearly income.

If you use bitcoin to acquire another cryptocurrency, such as Ethereum or Dogecoin, the transaction will be similar to selling Bitcoin. You will have to report the amount of the transaction on your income tax return.

Tax on Gifting Cryptocurrency

tax on gifting cryptocurrency

Property disposal occurs when an object or commodity is given or sold at a lower price than its purchase price. For example, a contribution or gift of cryptocurrency falls under this category.

The cryptocurrency will be evaluated according to its current market value at contribution. Therefore, disclosing any gain or loss on the asset’s sale is necessary.

So let us say the gift is given to an authorized recipient, such as a registered charity. If this is the case, the recipient will provide you with a tax receipt.

The cryptocurrency’s fair market value at the time of the transfer will determine the value of the gift for tax purposes.

CRA and Tax Avoidance

CRA Tax Avoidance

It is illegal to fail to register and report any cryptocurrency-related transaction. As a result, the Canadian Revenue Agency (CRA) aggressively pursues non-compliance with reporting cryptocurrency trading profits to guarantee a fair tax system.

Creating an account on a cryptocurrency platform necessitates providing personal information. The Canada Revenue Agency (CRA) detects tax avoidance schemes because they have access to it and verify data with other sources.

Consequences of Not Reporting Crypto Earnings

Assume you fail to submit crypto earnings to the CRA. In that case, the agency will treat this as if you did not record any other income. This will violate the law, which the CRA would treat as tax avoidance. When the CRA discovers this, you will be liable for a fine.

In Canada, the penalty for tax evasion can be up to twice the tax intended to be avoided and imprisonment. However, it is essential to remember that the CRA is more concerned with collecting owed money than putting someone in prison.

Your unpaid tax will be combined with interest and penalties on top of any evasion penalty you will be forced to pay.

Conclusion

The most important thing to remember is that Canadians are subject to tax on their cryptocurrency income. This is a relatively new form of taxes, and it may change. 

Consult a tax professional who specializes in cryptocurrency taxation. The simplest method to guarantee your taxes are done correctly is to hire a professional. Before investing in cryptocurrencies, knowing how your transactions will be taxed is a good idea.

Exchange Crypto With Coinbase!

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  1. Frank Nez

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