Every cryptocurrency disposition or transaction creates a TAXABLE EVENT. Whether buying, selling or trading, any gains or losses that result are taxable.
The Canada Revenue Agency, CRA, defines, disposition as “refers to the way you get rid of something, such as by giving, selling or transferring it.”
This would mean that any exchange “property, possession or ownership” of cryptocurrency, or token can be and actual or deemed a cryptocurency disposition. This results in a taxable consequence event. The events can be as follows:
- sell or make a gift of cryptocurrency
- trade or exchange cryptocurrency, including disposing of one cryptocurrency to get another cryptocurrency
- convert cryptocurrency to government-issued currency, such as Canadian dollars (aka FIAT currency)
- use cryptocurrency to buy goods or services
- mining of cryptocurrency
The next step would be to consider if your cryptocurrency disposition activities were business activities or hobby/investing. To file your income tax return, you need to know how to value your cryptocurrencies. First, you need to have transactions records. This depends on whether they are considered capital property or inventory. You can engage the services of a crypto currency accountant to help you value your cryptocurrency holdings so that you can accurately report any capital gains or losses.
In our experience with cryptocurrency, software solutions (like Koinly and CryptoTax Calculator) are still in their infancy. Many cryptocurrency investors and traders trade multiple tokens, currencies and engage in many swaps and staking, mining across multiple crypto exchanges. The most popular cloud-based online cryptocurrency tax services produce tax reports that wildly vary! For example, Client A approached us. He used a popular cryptocurrency tax service. It reported that he lost approximately $254,000 when his original investment wasn’t even close to the reported loss. “How can this be?”, he thought. There’s no way that one could lose more than the original capital. In most cases, when clients submit their data, the cloud-based tax service may not be able to handle the highly varied CSV formats. There are more reasons but a human can discern.
A cryptocurrency accountant has the knowledge and understanding to logically analyze and reason. At the end, do you want to risk not reporting your cryptocurrency dispositions? The Canada Revenue Agency doesn’t audit crypto-transactions … YET. Just because the CRA can’t do this today doesn’t mean they won’t be able to in the future, and they may not be so forgiving if they uncover a long history of unreported gains. In the long run, the best way to protect yourself (or your client) is to report any gains/losses as you would for stocks.