Navigating the Digital Frontier: A Tax Guide to Cryptocurrency in Canada

Published By: Candy M. Davis, CPA, CGA

For Accountants and Investors
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Cryptocurrency. It's been making headlines, sparking debates, and quietly revolutionizing how we think about money. But for accountants and investors, the real question is: how do we navigate the tax implications of this digital frontier?

While concrete legislation is still pending, the Canada Revenue Agency (CRA) has provided some much-needed clarity. This article, based on guidance currently available, will help equip you with some basic knowledge to guide your clients (and your own portfolios) through the evolving world of crypto taxation.

Key Takeaway: The tax treatment of cryptocurrency in Canada hinges on how it's acquired and used. Let's break it down:

Acquisition: Buying vs. Mining vs. Staking

• Direct Purchase: This is the most straightforward scenario. Your adjusted cost base is simply the amount you paid for the cryptocurrency. If you have multiple purchase transactions of the same cryptocurrency, then you will calculate the average cost base of each type of crypto-asset.
• Mining: The increasing costs and scale required for successful mining of crypto-assets generally indicate a business activity. As outlined in the CRA's guidance on Digital Currency, the fair market value of the crypto-asset received at the time it is mined is included in income and becomes its cost basis.
• Staking: While not directly addressed by the CRA, guidance suggests that staking, much like mining, can be considered a business activity depending on its scale and sophistication. As staking requires locking up a designated amount of cryptocurrency for a specified return, the receipt of crypto-asset payments can be considered a form of interest income when received. As with mining, this fair market value also becomes the cost basis of the asset received.

Utilization: Commodity or Security?
The Canada Revenue Agency (CRA) approaches cryptocurrency classification based on its use, leading to intriguing tax implications.

For goods and services transactions, cryptocurrency is treated as a commodity, akin to a barter system (Source: Cryptocurrency Guide). This means:

• Payments: GST/HST registrants accepting cryptocurrency must calculate and remit tax based on its fair market value at the time of receipt. This value is typically determined by publicly available market data. If such data isn't available, the value of the goods or services sold is used.
• Dispositions: Accepting cryptocurrency as payment triggers a disposition of the asset, potentially leading to capital gains, losses, or income inclusion calculations.

For investment purposes, the lines blur, and cryptocurrency takes on characteristics of a security.

• Exchanging: Trading one cryptocurrency for another is considered a deemed disposition, potentially triggering capital gains or losses, even without converting to Canadian dollars (Source: Cryptocurrency Guide).
• Investments: The CRA relies on principles outlined in IT-479R "Transactions in Securities" to determine if your cryptocurrency trading generates capital gains or business income. Factors considered include trading frequency, expertise, and holding period (Source: IT-479R Transactions in Securities).

Don't be misled by the term "business activity" – it's a tax categorization, not an indication that you need a registered business. Think of it as differentiating between long-term investing and active trading.

Mining for Tax Benefits
We can generally consider cryptocurrency mining a business activity due to the increasing costs and scale required for profitability.

Commercial/Business Mining:

• Income: The fair market value of cryptocurrency mined is considered business income at the time it is mined. This value also becomes the cost basis for calculating future gains or losses or the cost of inventory purchased for the eventual calculation of cost of goods sold.
• Expenses: Deductible expenses include equipment, utilities, software, and other costs directly related to your mining operation.
• Inventory Valuation: Follow the guidelines in IT-473R "Inventory Valuation to determine the appropriate valuation method for your mined cryptocurrency. o Note that CRA further indicates that, “inventory of a business that is an adventure or concern in the nature of trade must be valued at the cost for which you acquired the property” (Source: Cryptocurrency Guide). 

We’re just scratching the surface here.
Follow us for a deeper dive with future planned articles discussing margin-trading, crypto-losses, scams and thefts, and other matters affecting crypto-users in Canada!


This article is for informational purposes only and should not be considered financial or tax advice. The content is based on the author's current understanding of the information available as of July 15, 2024. Tax regulations and legislation are subject to change, and the information presented here may become outdated. For personalized advice tailored to your specific situation, it is essential to consult with a qualified tax professional specializing in cryptocurrency.