Is Bitcoin Taxable in Canada?

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During the past few years, there have been several major changes that have taken place in the financial world and one of the biggest has been the development of cryptocurrency. Also called digital currency, this has been led by Bitcoin. What makes Bitcoin unique is that this currency operates using a distributed, decentralized network. Now that Bitcoin has become more popular as a way to generate both an income (in the form of mining) and traditional, capital gains, many people are asking whether or not Bitcoin is taxable. Specifically, people would like to know if Bitcoin is taxable in Canada. To answer this question, it is important to take a closer look at how Bitcoin works, how people make money, and the current financial regulations.

With tax time coming up, it is time to take a look at the implications of cryptocurrency transactions such as buying, holding, and selling Bitcoin along other cryptocurrencies that have become so popular during the past few years. Now, it is important to note that this post has not been designed to convey fiscal or legal advice. Therefore, anyone who has questions about their taxes needs to make sure they work with a trained accountant or tax specialist. This post is designed to offer opinions, provide information, and answer some general questions. Everyone’s specific situation is different. Now, it is time to take a closer look at Canada and the fiscal implications of Bitcoin and other digital currencies.

An Overview of Bitcoin in the Country of Canada

In the country of Canada, Bitcoin, along with other digital currencies, is usually treated as a commodity for income tax by the revenue agency, CRA. Therefore, income from Bitcoin is usually handled as any other capital gain or loss. Now, this is not always the case, as some people and companies might categorize Bitcoin differently. How does this happen and what does this mean?

So, when someone is filing their taxes, what do they have to do? First, people need to declare any gains or losses that they have made through Bitcoin or other digital currencies during the year. The best way for people to do this is to simply keep a running tally of any purchases and sales they have made of Bitcoin and other digital currencies. This means writing down the dates, tracking the number of units bought or sold, and the prices at which these sales took place. This doesn’t have to be anything complicated. Even pen and paper will do fine, although most people like to track this electronically. Those who are using a recognized exchange should be able to download an electronic record on their own.

Besides, people need to keep in mind that any purchases that have been made using Bitcoin, or if someone has converted Bitcoin into other digital currencies, this means that the Bitcoins have been dumped. At the time of that transaction, it is important to convert this information into a profit or loss as well. This should be done in Canadian dollars and needs to be used for income tax purposes. Many people forget to do this; however, it is incredibly important, and overlooking this step could have major tax implications down the road. Nobody wants to have their taxes looked at by authorities.

The next step in this process is to figure out whether the profits or losses need to be declared as ordinary income or capital gains. It is important to get this right, as this could impact the size of someone’s tax bill. Remember that there is always the possibility that someone could be audited, which could lead to fines, so people need to make sure they declare this correctly. The general rule of thumb is that anyone who is operating a business that involves the purchase or sale of Bitcoins will need to declare the profits and losses of income. Now, some people might not be sure if they are running a business or not. Some of the most important clues include:

  • The activity is being done for commercial reasons and there is someone behind the scenes who are promoting products and services
  • The goal is to make a profit through the use of a repetitive process
  • There is a lot of Bitcoin mining and trading taking place daily
  • This has been deemed as “adventure” that has been designed to make a profit

Now, this list is subjective. Every case has to be handled on a case by case basis. If someone has a separate job that has nothing to do with Bitcoin and they are treating Bitcoin as a way to eventually save for retirement, then this is not income and should be declared as capital gains. In this sense, Bitcoin is being treated like stocks, bonds, and mutual funds. People should think carefully about how they are going to declare any money they make with Bitcoin.

So, Which Is Better?

Now, one of the most common questions people have about Bitcoin is which is better. The reality is that capital gains would be way better since only half of the Bitcoin profit is taxed at the current tax level whereas 100 percent of income is taxed at the current income level. Remember that capital gains and losses that take place using Bitcoin can be offset by gains and losses on other investments (such as stocks) but there is no such offset when it comes to ordinary income. Furthermore, some gains and losses can be carried forward, which is even better. For all of these reasons, it is better to declare any income gained through Bitcoin as capital gains, when possible; however, it is also important to follow the law.

These are a few of the most important points that people need to keep in mind when it comes to Bitcoin and taxes in the country of Canada. People need to make sure they follow the law while acting in their best interests.

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Disclaimer: The information provided on this blog is for informational purposes only and should not be taken as any form of advice.

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