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Is bitcoin taxable in Canada?

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Despite being over a decade old, Bitcoin is still considered to be a relatively new payment system that is not operated by a centralized government authority. This, among other things, is what sets it apart from most other currencies. Bitcoin has garnered attention ad praise from non-traditionalists and tech-savvy individuals, with its popularity stemming from its effectiveness in online payments and transfers. This is thanks to its built-in encryption and security techniques.

The initial appeal of Bitcoin was mostly credited to it being unregulated and immensely useful for tax obligation evasions. On top of that, its virtual structure and universality make the cryptocurrency challenging to keep track of in transactions carried out between different countries.

Unsurprisingly, Bitcoin could not avoid the tax authorities for very long. Along with attracting many investors and those looking for alternative payment methods, Bitcoin has also captured the attention of the Canada Revenue Agency (CRA), which has modified pre-existing tax codes. They did so in order to help in addressing profits and transactions that correlate with digital currencies.

Along with wanting to know how to buy bitcoins in Canada, many want to know if Bitcoin is taxable in this country.

The basics

The CRA normally treats cryptocurrency more like a commodity for Income Tax Act purposes. Any income from transactions that involve crypto is, for the most part, seen as either a capital gain or business income. Whichever it largely depends on the circumstances. In a similar vein, should the earnings qualify as business income or a capital gain, any losses are viewed as being business losses or capital losses and treated as such.

Taxpayers must establish if the result of cryptocurrency activity pertains to income or capital. The reason for this is that it will affect the treatment of the revenue for income tax purposes. An important note to remember is that not all taxpayers buying and selling cryptocurrency are conducting business activity.

Using cryptocurrency to pay for goods and/or services means that the CRA will treat it as a barter transaction for the purpose of income tax. A barter transaction typically transpires when two parties exchange goods or services and execute that exchange without incorporating the use of legal currency.

Different methods

Figuring out the value of a cryptocurrency transaction where a direct value is indeterminable requires the use of a practical method.

It is recommended that people keep records to show how they determined the value. In general, the CRA’s standpoint is that the fair market value is the highest price. Moreover, it is represented in dollars that an eager buyer and a willing seller – both knowledgeable, practical, and acting independently – would agree to it within an unrestricted market. For instance, someone can choose an exchange rate deriving from the same exchange broker they are using. Alternatively, they can go with an average of midday values extended over several high-volume exchange brokers. Whichever method is chosen, the individual must consistently use it.

If someone holds more than one type of cryptocurrency inside a digital wallet, then each crypto type is regarded as a separate digital asset and needs to be valued separately. A good example of this would be the fact that a bitcoin is has a separate value from a bitcoin.

How it is taxed and what is taxable

The CRA has distributed guidance that states Canadian taxpayers be accountable for taxes on cryptocurrency. Additionally, crypto is not viewed as a legal tender currency, instead – as stated before – being treated as a commodity.

Depending on whether someone’s crypto activity is considered a business or not, cryptocurrency is taxed in Canada as either income tax or capital gains. Only 50% of capital gains are taxable, whereas all business income is taxable. If you are not sure what level you are operating on (personal or business), then the best solution is to check with a tax professional.

The CRA declares that a disposition, or taxable events, of crypto, will lead to taxable consequences. Such events include the following:

·       Trading crypto for crypto

·       Making a sale with crypto or giving it as a gift

·       Selling crypto for fiat currency, such as CAD

·       Using crypto as a payment method for goods or services 

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