Last month we discussed when you need to report your cryptocurrency on your tax return along with the 4 taxable transactions. If you missed that you can read the entire article HERE.
To recap:
Just buying and holding cryptocurrency in a digital wallet is not taxable. A taxable transaction must take place which is then reported to CRA on your tax return.
An easy way I tell my clients to remember the taxable transactions is: anytime cryptocurrency leaves your digital wallet or you convert one type of crypto into another it is a taxable event and you have to report it on your tax return.
✨A note about staking and mining:
There is nuance to both of these areas when it comes to taxation and CRA currently lacks hard rules for reporting this.
Mining: This can either be considered a hobby or business activity on a case-by-case basis.
Staking: There are NO CRA guidelines when it comes to staking.
For a full breakdown of when you must report your staking and mining read last week's article HERE.
How to Report Your Crypto on Your Canadian Taxes
Now that you know what transactions are taxable how do you actually report it to CRA?
First, you must track your crypto transactions. This is anytime you buy, sell, or convert your crypto.
Some trading sites/crypto exchanges, like Wealthsimple, will track and calculate this for you and issue you a T5008 tax slip at the end of the year.
If your platform does not issue you a T5008 it is your responsibility to track your crypto transactions.
To track your crypto transactions throughout the years you'll want to set up a spreadsheet with the following categories:
Date of transaction
Type of transaction (bought/sold/converted)
Type of coin/crypto
Amount of coin/crypto
Fair market value in CAD on the date of purchase for that amount of coin/crypto
Fair market value in CAD on the date of disbursement for that amount of coin/crypto
Once you have this information you will calculate your crypto gain or loss just like any other capital asset.
Step 1: Find the purchase price (fair market value in CAD at the time of purchase) or adjusted cost base (ACB) in CAD for the crypto asset that had the taxable transaction.
Step 2: Find the fair market value in CAD on the date of the taxable transaction for that amount of coin/crypto aka the sale price.
Step 3: Subtract the sale price from the purchase price.
If this is positive you have a capital gain, if this is negative you have a capital loss.
Step 4: Subtract your outlays/applicable expenses. These include transaction fees, carrying charges, brokerage fees and things of that nature. This is your capital gain or loss.
Step 5: Do this for all of your taxable transactions then add the results together to find your overall capital gain or loss for the year.
Step 6A: If your overall gain is less than $250,000:
Gain: Multiply your overall gain from step 5 by 0.5. The result is your taxable net capital gain. This is the amount of money you will pay taxes on at your federal and provincial tax rate. Your net capital gain gets added to your total income.
Loss: Multiply your overall loss from step 5 by 0.5. This result is your net capital loss. You can either carry back this loss to any of the 3 prior tax years to be used against a net capital gain or carry it forward to be used in the future.
Step 6B: If your overall gain is greater than $250,000
Gain: If your overall gain from step 5 is greater than $250,000 subtract $250,000 from the total and multiply that by 0.5 to get $125,000.
This is because the first $250,000 of capital gains still has a 50% exclusion rate.
Then take the remaining gain and multiply it by 0.6667 to find your remaining taxable net capital gain.
Add together $125,000 and the result from the last calculation to find your overall taxable net capital gain. This is the amount of money you will pay taxes on at your federal and provincial tax rate. Your net capital gain gets added to your total income.
Loss: Similar to a gain, subtract $250,000 from the total capital loss and multiply that by 0.5 to get $125,000.
This is because the first $250,000 of capital losses still has a 50% exclusion rate.
Then take the remaining loss and multiply it by 0.6667 to find your remaining taxable net capital loss.
Add together $125,000 and the result from the last calculation to find your overall taxable net capital loss. You can either carry back this loss to any of the 3 prior tax years to be used against a net capital gain or carry it forward to be used in the future.
There is a lot more to discuss about capital losses and the different tax strategies you can use with them. We'll cover what they are, how they work and how to utilize them effectively in a future post.
Comentarios