Yes, you need to disclose your crypto trades. The CRA has been investing into tools that leverage the open nature of crypto blockchains. The CRA is actively conducting audits of those investing and trading in crypto-assets. In a 2020-2021 report, the CRA confirmed that it is continuing to improve its crypto-related compliance efforts by implementing specific measures.
Are cryptocurrencies and alt-coins taxable assets in Canada?
Yes, the Canada Revenue Agency (CRA) has published articles that has deemed all cryptocurrencies as a form of property that’s like stocks. Therefore, the costs of trading, profits and losses in cryptocurrencies are subject to capital gains or business income.
How do I know if my crypto trading is subject to capital gains or business income?
To determine if you’re in either camp, consider these categories:
Time spent on trading
Frequency of trading per day, per week and per month
How long do you hold your crypto, alt-coins and NFTs
Depth of expertise in the cryptocurrency market
Sources of finance to support purchases (i.e., debts and financial funds sourcing)
Are there consequences if I don’t report my profits from cryptocurrencies?
One of the main advantages for cryptocurrency is that your trades are anonymous and, therefore, unknown to the government. We’re finding out that’s not true. The US government has been able recover billions in crypto currencydue to the openness of the blockchain and the onramp and exits of the blockchain via Crypto Exchanges. So, when a taxpayer sells crypto and exchanges it back to FIAT currency then transfer them into a bank account, the taxpayer’s identity is known and banks are required to disclose it to the taxing agency. If left unreported, it may raise an audit flag if left unreported.
If I don’t report my cryptocurrency gains, what are the penalties?
The CRA punishment for not reporting can be very substantial. The penalty for un-reporting is $2,500/year. Furthermore, penalties can be in the range of 20% and may even include criminal charges for tax evasion.
How do I calculate the gains and losses due to crypto trading?
The best way is to engage with a crypto accountant. The crypto accountant will work with you on the best course of action that’s tailored to your own UNIQUE trading scenario. If you have used multiple exchanges, have swapped, air dropped, purchased, and disposed of multiple cryptocurrencies and alt-coins, NFTs, gaming tokens across one or multiple crypto exchanges, you need to aggregate, analyze and arrive at the total Adjusted Cost Base (ACB) adjusted for Canadian Dollars (CAD), or your local country currency in your own country. Then, you can work with your local tax accountant to file your taxes.
Forte Innovations is back-office firm that provides cryptocurrency accounting, bookkeeping, and consulting services. We are not a public accounting firm and does not provide services that would require a license to practice public accountancy.