How to Report Cryptocurrency Gains or Losses to the CRA
As cryptocurrency has become more mainstream, the Canada Revenue Agency (CRA) has tightened its expectations around reporting crypto transactions. If you’re buying, selling, trading, mining, or using cryptocurrency in any way, you may be required to report these activities on your tax return. Failure to do so can lead to audits, penalties, or worse. Here’s what you need to know about crypto-assets, how capital gains or losses are calculated, and how to properly report them to the CRA.
What Are Crypto Assets?
It’s important to understand what a crypto asset is. According to the CRA, crypto assets are digital representations of value that rely on cryptography and distributed ledger technology, such as blockchain. This includes well-known cryptocurrencies like Bitcoin and Ethereum, as well as non-fungible tokens (NFTs). In Canada, these assets are not considered legal tender or money, but are treated as commodities for income tax purposes.
Cryptocurrency, the most common form of crypto asset, is a digital medium of exchange that allows users to make peer-to-peer transactions without an intermediary. Because it behaves more like a commodity than a traditional currency under Canadian tax law, any time you dispose of a crypto asset, whether through selling, trading, or using it, you may trigger a taxable event.
When Are Crypto Transactions Taxable?
Capital gains or losses from crypto are typically incurred when you sell your crypto for fiat currency like Canadian dollars, exchange one cryptocurrency for another, use crypto to buy goods or services, gift it, or convert mined or staked coins into other assets. The CRA considers all these activities as dispositions, which require calculation of the gain or loss based on the fair market value (FMV) at the time of the transaction.
To determine whether you have a gain or loss, calculate the difference between the proceeds of disposition (what you received from the transaction) and the adjusted cost base (ACB) of the asset (what you paid for it, including any related fees). If the proceeds exceed the ACB, you have a capital gain; if it’s less, you have a capital loss. Only 50% of capital gains are taxable, and capital losses can only be used to offset other capital gains—not regular income.
Business Income vs. Capital Gains
Not every crypto transaction results in a capital gain. Particularly where trading occurs frequently, or where mining or staking is conducted on a commercial scale, your earnings may be considered business income. In this scenario, 100% of your profits are taxable, and you must report them using business income forms. The CRA considers several factors in determining whether your activity constitutes a business, including volume, frequency, and intent to earn profit.
Reporting Requirements
So how do you report crypto on your tax return? If your crypto activity results in capital gains or losses, you’ll need to report each transaction on Schedule 3 – Capital Gains or Losses of your personal tax return (T1). This includes the proceeds, the ACB, and any applicable outlays or expenses. If your crypto activities are considered business-related, you’ll need to complete Form T2125 – Statement of Business or Professional Activities. In both cases, accurate record-keeping is essential.
Common Pitfalls to Avoid
Reporting crypto can get complicated, and there are a few common pitfalls to watch for:
- Misclassifying income: Reporting business income as capital gains (or vice versa) can lead to reassessments.
- Neglecting small transactions: Even seemingly minor transactions, like buying coffee with crypto or transferring coins between wallets, can be considered dispositions.
- Superficial loss rules: These apply to crypto just like stocks. If you sell an asset at a loss and repurchase it within 30 days, the loss may be disallowed.
Documentation Is Critical
Another major challenge is documentation. The CRA requires detailed records of all crypto activity, including:
- Dates of transactions
- Amounts in Canadian dollars
- Type of crypto asset
- Purpose of the transaction
- Wallet addresses
- Details of the counterparty (if available)
You must keep records for at least six years in case of an audit. Many taxpayers fail to track this information in real time and find themselves scrambling at tax time.
Cryptocurrency may be decentralized and digital, but tax obligations in Canada are very real. Whether you’re a casual investor or an active trader, it’s crucial to understand your responsibilities and file accurately. When in doubt, consult a tax professional with experience in crypto.
Elias Zafiridis