The use of cryptocurrencies is allowed in Canada but they are not considered legal tender. “Only the Canadian dollar is considered official currency in Canada,” states the Financial Consumer Agency of Canada. The country applies capital gains tax laws on virtual currencies and distinguishes between cryptocurrency taxation for individuals or businesses.
Cryptocurrency taxes for individuals in Canada
As Canadian resident you are obligated to report gains and losses from worldwide sources to the Canada Revenue Agency (CRA). The revenue agency considers each transactions and exchange between different currencies a taxable event. The gain or loss hence is calculated by subtracting the Adjusted Cost Base (ACB) of the disposed of currency from the Fair Market Value (FMV) of the acquired currency. Cryptocurrencies fall under capital gains taxes at a federal tax rate varying between 15% and 33%. Only exemption is the province of Quebec where the tax rate is from 15% to 25.75%.
For the tax calculation only half of your gains or losses are included in your income tax and then taxed at the applicable tax rate depending on the tax bracket you are in. If one has made capital losses they can only be offset against capital gains and can be carried of three years back and indefinitely forward.
Cryptocurrency regulations for businesses in Canada
If gains are determined to be business income, 100% of net gains must be included in the income tax return. Business losses can be carried 3 years back and 20 years forward but not be offset against capital gains or losses thus it first has to be defined which category the activities fall into. A few indicators are: the frequency of transactions, the period of ownership, the way of financing and advertising and so on.
As part of the Anti-money Laundering regime, Canada demands that every company operating with cryptocurrencies is registered with the Financial Transactions and Reports Analysis Centre of Canada (Fintrac), keeps records and reports suspicious transactions. Same applies for exchanges which are not situated in Canada but serving persons or entities in Canada.
Government statements on cryptocurrencies in Canada
The CRA published a statement on the definition of cryptocurrencies in 2015, defining them as commodities/securities, and then let the issue go cold. Thus the topic of tax laws was left to lawyers, accountants, and CRA auditors. Yet projects initiated by authorities and institutions to better understand the Distributed Ledger Technology and its implications. One of them is “Project Jasper” which the Bank of Canada, Payments Canada, and R3, a distributed database technology company, aim “to understand how distributed ledger technology (DLT) could transform the wholesale payments system.” On the other hand there are institutions, for example the Bank of Montreal, which issued a ban for customers dealing with cryptocurrencies.
Although the government announced to look into the topic of digital assets in more detail until fall 2018, the issue by now is put on hold due to the 2019 elections. Therefore, the country may have to wait until 2020, as there is an additional 12-month period after publication for any new regulations to take effect.
In recent years, it has been observed that the trade in cryptocurrencies such as Bitcoin, Litecoin and Ethereum has steadily increased. However, many cryptocurrency owners do not consider that the profits or losses from trading cryptos are taxable. Therefore Blockpit offers software that meets the requirements for traders of Bitcoin, Ether and Co. Besides the webapp Blockpit also offers a mobile app that is free for iOS and Android. With the API import, transactions can be imported from different exchanges without much effort. Taxes on cryptocurrencies do not need to be complicated – use Blockpit
The information provided in this blog post is for general information purposes only. The information was completed to the best of our knowledge and does not claim either correctness or accuracy. For detailed information on crypto regulations we recommend contacting a certified legal advisor in the specific country.
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