How Does CRA Tax your Crypto Currency Investments ?

Crypto currency investments continue to be on the rise amoung canadian investors. According to the Ontario Securites Commission, 11% of Canadians have reported that they have owned some form of Crypto currency investment at some point in time. However, only 5% of Canadians currently own Crypto. What that means is that Candians are selling there Crypto securties. Just like all other forms of income, CRA wants their piece of the pie via taxes. But with Crypto being relatively new to the investment landscape, this article will discuss the tax implications associated with income from Crypto investments - What are the tax rate ? Do I pay tax before I sell ? What happens if I lose money ?

What is considered a Crypto currency investment ?

A crypto currency investment is different that actually owning crypto currency. As a comparison, lets consider gold. You can own gold or you can invest in gold. When you own gold itself you can use it as a means on currency exchanging it for other goods or services of similar value. When you invest in gold, you invest in the value of it, meaning as the value of gold goes up or down, your investment goes with it. This article will be focusing on the tax treatment of investing in Crypto currencies.

How are my gains on Crypto taxed?

Like other stock investments, the value of your investment rises and falls based on the value or price. Taxes are paid on the gains that are realized. The realization of your gains is the trigger as to when your tax liability will occur. The realization of gains happens when you decide to relive yourself of your investment, or in other words sell. As the price of your investment rises or falls, you will only be tax liable once you decide to sell your investment.

Are my gains or losses considered business income or personal ?

How your gain or loss is catogorized is important as it will dictate how much it will be taxed.

Is my Crypto gains considered business income ? - Business income is defined more or less how it sounds - income that is generated in the process of conducting a business. So if the majority of your time, space, is spent on generating income by means of Crypto investments, the income you generate will be considered business income. See below for some factors to consider when determining if your crypto is considered business realted by CRA:

• Frequency of transaction (buying and selling)

• Lenght of time of ownership of investment(s)

• Extensive knowledge of Crypto

• Time spent on crypto (buying, selling, researching etc)

• Other factors that would constitute carrying on a business (office space, colleagues, advertising etc)

  
  

It should be kept in mind that no singular factor above will constitute your investment in crypto as business, rather just factors that CRA will take into account when making such determination. How is my business income taxed ?

Is my Crypto gains considered personal income ? - Your crypto gains will be considered personal if it is not considered business. Meaning, if you do not meet the cryteria listed above, and are not considered to be conducting a Crypto investment business, it will be considered personal.

Personal gains of Crypto will be considered as a capital gains.

A Capital gain is the profit made when an asset, such as a stock or a rental property is sold.

What is the tax rate of Capital Gains - The tax rate on capital gains is the same as the normal tax rate. However, the inclusion rate differs. The inclusion rate is the amount of profit on capital gains that is taxable. For example, if you sold your Crypto investment and netted a profit of $260,000, the inclusion rate is the portion of the $260,000 that you are required to pay taxes on. The inclusion rate for profits under $250,000 is 50% meaning you would pay tax on $125,000 and the remaing $250,000 would be tax free. See CRA’s ‘Tax Fairness’ Initiative - Increase to Taxable Gains for further information on tax on capital gains.

How is Cypto Business Income Taxed ?

If your income on your Crypto investments are deemed as business income they will not be considered to be a capital gain. Meaning, the they will not be subject to the 50% inclusion rate. 100% of the profit will be taxable.

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