The Canadian Revenue Agency (CRA) has issued guidance that virtual currencies are generally treated as commodities under the Income Tax Act: "Any income from transactions involving cryptocurrency is generally treated as business income or as a capital gain, depending on the circumstances."
This means that the CRA treats cryptocurrency transactions like barter transactions. Taxpayers have to establish if a cryptocurrency activity results in income or capital because this affects the way the revenue is treated for income tax purposes.
You can see the "Is it business income or capital gain?" section in the guidance to help determine which treatment applies to you (or check out this guide). The difference is that business income is included in taxable income at 100%, whereas capital gains are included in taxable income at 50% (as in the US, charges, fees, and commissions can be deducted).
Crypto:crypto trades (e.g. BTC for ETH) are also treated as barter transactions and taxed the same way.
Accounting methods in Canada
If you have capital property (non-business, personal use), then the CRA requires that capital gains treatment be applied to your cryptocurrency disposals. The CRA requires using Adjusted Cost Base (ACB) for these calculations. Your capital gains go onto your Schedule 3 Form. See here for an explanation of how ACB works.
If your cryptocurrency disposals are instead classified as business income, then the CRA mandates using inventory accounting methods to track the income. You have two options for assessing the cost basis of your cryptocurrency holdings:
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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
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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)
In this case, your business income would go on T2125 Statement of Business or Professional Activities.
Foreign property
Additionally, when you hold specified foreign property greater than CAD 100,000 in value during any time during the year, you are required to fill out a T1135 – Foreign Income Verification Statement.
Superficial loss
The CRA also has a superficial loss rule to prevent taking advantage of capital losses. We are working on building this into CoinTracker however would need to be calculated manually for the time being using the Capital Gains CSV CoinTracker provides.
Airdrops and Forks
For airdrops and hard forks, unlike the US where guidance is unclear, in Canada the cost basis is zero for these coins. Therefore when the coins are disposed the entire proceeds are considered capital gains (for individuals) or income (for businesses).
By default, CoinTracker won't treat transactions tagged as "Airdrop" as taxable income in the Tax Center/Tax reports. If you would like to treat them as taxable income, please use the "Other income" tag.
Mining
Income tax treatment for miners depends on whether the mining activity is a personal activity (hobby) or a business activity. This is decided case by case. A hobby is usually undertaken for fun, enjoyment, or entertainment (rather than for business reasons).
However if a hobby is pursued in a sufficiently commercial manner, it can be considered a business activity and taxed as such. If the mining is a business activity, then business income tax rules apply and any costs associated with mining (e.g. equipment, electricity, etc.) would need to be calculated on a per coin basis and then could be deducted against the proceeds.
By default, CoinTracker won't treat transactions tagged as "Mining reward" as taxable income in the Tax Center/Tax reports. If you would like to treat them as taxable income, please use the "Other income" tag.
TurboTax
Use CoinTracker alongside TurboTax to file your cryptocurrency taxes efficiently.
For more detailed steps, visit the TurboTax support page.
Disclaimer: CoinTracker is provided for informational purposes only. This service is not intended to substitute for tax, audit, accounting, investment, financial, nor legal advice. For financial, tax, or legal advice please consult your own professional. The information on CoinTracker is subject to change without notice. All information is provided "as is." CoinTracker disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Please see our full disclaimer.