Canada Crypto Taxes 2022 What You Need To Know
Got crypto gains? Or even losses? Before you know it, the April 30 tax return deadline will roll around. That’s why we’ve teamed up with our crypto tax calculator partner, Koinly, to guide you through the key rules, rates, and dates you need to know.
Wait, cryptocurrency is taxed in Canada?
Yes, the Canada Revenue Agency (CRA) says that crypto is a commodity for purposes of the Income Tax Act and is subject to tax.
It’s this view that dictates how your crypto will be taxed. It will be subject to Income Tax - either as a capital gain or business income. Understanding the CRA’s guidance on crypto tax is the first step in being able to accurately report any gains or losses realized from crypto disposition to the CRA.
Capital gain or business income?
Investors with capital gains and those with business income are taxed differently by the CRA.
Investors with capital gains will only pay Income Tax on half of any capital gain and similarly may offset half of any capital loss when calculating their net gain or loss.
Meanwhile, those with business income will pay Income Tax on the entirety of all profits.
The CRA decides whether a taxpayer has a capital gain or business income on a case-by-case basis, but consider the following guidance on whether you may be conducting business activities:
- You conduct crypto activity for commercial reasons.
- You promote a product or service.
- You show that you intend to make a profit.
- Your crypto activities are regular or repetitive.
It’s also important to note that an individual transaction may be seen as business income, while other activities may be seen as a capital gain.
In this guide, we’ll be focusing on the tax implications for individuals investing in crypto. Please note that corporations, trusts, and DAOs may face different tax implications.
What triggers a taxable event?
The CRA is clear that it is a disposition of crypto that triggers a taxable event. A disposition refers to disposing of an asset. As well as this, there are a number of other transactions that may be viewed as income by the CRA. Activities that may trigger tax consequences include:
- Selling cryptocurrency for CAD, USD, or any other fiat currency.
- Trading or exchanging one cryptocurrency for another cryptocurrency.
- Converting crypto to buy goods or services.
- Gifting crypto.
- Staking rewards.
- Other: ICO, airdrop, forks, etc.
As well as this, the CRA is clear that crypto miners may need to pay Income Tax on their mining rewards, depending on whether their mining activities are a personal activity or a business activity. This is decided on a case-by-case basis.
You can learn more in Koinly’s Canada Crypto Tax Guide.
Calculating crypto taxes
Calculating your crypto taxes can be time-consuming and the CRA has some very specific rules around how to calculate capital gains and income.
When crypto is held as capital property, the CRA says the only allowable cost basis method is the adjusted cost basis method.
Meanwhile, when cryptocurrencies are considered to be inventory, the CRA says investors may use one of two methods to value inventory consistently from year to year:
- Value each item in the inventory at its cost when it was acquired or its fair market value at the end of the year, whichever is lower.
- Value the entire inventory at its fair market value at the end of the year (generally, the price that you would pay to replace an item or the amount that you would receive if you sold an item).
- Adjust the cost basis method with transactional fees to minimize tax liability
Our partner Koinly can help you calculate your crypto taxes using the adjusted cost basis method & superficial loss rule, and generate a variety of crypto tax reports including a Schedule 3, TurboTax, and Complete Tax Report. Better still, NDAX users receive an exclusive 20% discount on Koinly plans with NDAX20.
Key dates for crypto taxes
Crypto investors in Canada should know the following dates for their 2022 taxes:
- January 1 - December 31, 2022: The financial year for which your tax return is filed. If you have capital gains, losses, or income during this time period, you should report them to the CRA.
- January 1, 2023: The 2023 Canadian financial year begins.
- April 30, 2023: This is the official deadline to file your 2022 tax return with the CRA. It’s also the day you need to pay any taxes due to the CRA. However, as it falls on a Sunday, the CRA will consider your tax return as filed on time if the CRA receives it on the next business day, which is May 1, 2023.
- June 15, 2023: For self-employed persons (excluding those with business expenditures relating to a tax shelter investment) this is the deadline to file your 2022 tax return. However, if you have a balance owed for 2022, it must be paid on or before April 30, 2023.
- December 31, 2023: The 2023 Canadian financial year ends.
How to file your crypto taxes
You need to file your crypto taxes as part of your 2022 tax return. You can do this using paper forms, via the CRA’s My Account service, using a tax app like TurboTax or H&R Block, or via your accountant.
You need to report your crypto capital gains and losses on the Schedule 3 form. Depending on how the CRA views your income, any income from crypto may be reported on the T1 General Form. You can file both of these forms online using CRA's My Account.
Our partner Koinly can help you calculate your NDAX crypto taxes and generate your crypto tax report however you prefer to file. Here’s how it works in five simple steps:
- Sign up to Koinly free and connect NDAX. You can do this automatically via API or by uploading a CSV file of your transaction history. Learn more about how to connect.
- Connect all the other wallets, exchanges, and blockchains you use to Koinly. Koinly supports more than 700 integrations via API or CSV file. You’ll need to connect them all in order for Koinly to correctly calculate your gains, losses, and income.
- Sit back and let Koinly do its stuff. Koinly will calculate your capital gains and losses using the adjusted cost basis method (with superficial loss rule) and calculate your gains, losses, and income according to the preferences in your settings.
- Upgrade to a paid Koinly plan and download your report. Koinly is free to use, you’ll only ever pay when you want to download your tax report. Koinly can generate a variety of tax reports for Canadian investors depending on how you prefer to file, including the Schedule 3 Report, TurboTax Report, Complete Tax Report, and more. If you use an accountant, you can invite them to your Koinly account to let them review your crypto calculations and export the report you need instead.
- File your 2022 tax return with the CRA your preferred way. Use your Koinly report to file with the CRA your preferred way, whether that’s by uploading your TurboTax Report, using the figures from your Schedule 3 Report to file with the CRA’s My Account service, or simply letting your accountant deal with it!
A final note: records!
Before you go, the CRA is very clear that they expect investors to keep good records of their crypto transactions and notes that crypto trading platforms have different standards for the kinds of records kept and the time period these records are kept for.
It is therefore recomended to export information from these trading platfroms periodically. As stated in CRA guidance, it is the taxpayer's responsibility to keep all records and supporting documents for six years.
Investors should keep records of the following for their crypto transactions:
- the date of the transactions
- the receipts of purchase or transfer of cryptocurrency
- the value of the cryptocurrency in Canadian dollars at the time of the transaction
- the digital wallet records and cryptocurrency addresses
- a description of the transaction and the other party (even if it is just their cryptocurrency address)
- the exchange records
- accounting and legal costs
- the software costs related to managing your tax affairs
- receipts for the purchase of cryptocurrency mining hardware
- receipts to support your expenses and other records associated with the mining operation (such as power costs, mining pool fees, hardware specifications, maintenance costs, and hardware operation time)
- the mining pool details and records
Koinly can help with record keeping too, ensuring you always have excellent records of your crypto transactions across all the exchanges, wallets and blockchains you use, should the CRA ever request to review them.
Sign up to Koinly free today to calculate your NDAX taxes. NDAX users receive an exclusive discount of 20% with code NDAX20.
|
