Lynn Johannson, Advisor, Sustainability and ESG
January 4th, 2024
Lynn Johannson, President of E2 Management Corporation and Catalyst for THE Collaboration
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Tax Tips for Canadian Crypto Users in 2024
Crypto Taxes | March 18, 2024
Image: Freepik/fabrikasimf
Income Tax Considerations for Canadian Crypto Users
With the 2024 tax season upon us, understanding the nuances of crypto taxation is more crucial than ever. Below is an overview of some essential tax tips and strategies to help you comply with Canada Revenue Agency (CRA) regulations. From record-keeping best practices to identifying taxable events, the CRA published an information guide for crypto users and tax professionals that has you covered.
1. Every transaction you make with crypto-assets can trigger a tax event
Here are the most common types:
- Trading. Buying and selling crypto-assets can result in capital gains or losses, depending on the value of the asset at the time of the transaction compared to when it was acquired.
- Mining. Income from mining activities, whether as a hobby or a business, has tax implications. If mining is a business activity, the income needs to be reported as business income. If it's a hobby, the value of mined coins at the time they are acquired is taxable.
- Staking. Rewards received from staking are considered income at their fair market value at the time of receipt and must be reported accordingly.
- But what about Airdrops and Forks? These can result in unexpected income, with the fair market value of the new tokens being taxable in the year they are received.
2. Determining Business Income vs. Capital Gains
The nature of your crypto transactions significantly impacts your tax obligations. The CRA looks at several factors to determine whether your activities constitute a business or are investment-related, which affects whether your earnings are taxed as business income or capital gains:
See: CRA Tax Implications for Individuals and Crypto Platforms
- Regular and frequent trades might be considered a business activity.
- Short-term holdings frequently turned over could indicate a business operation.
- Purchasing with the intention to resell for profit suggests business income.
- A professional level of knowledge or a pattern that aligns with trading practices can imply business activity.
3. Record-Keeping for Tax Purposes
Compliant record-keeping goes beyond tracking buy and sell transactions. It includes documenting the intent behind transactions, the research conducted before investments, and the strategy for buying or selling assets. These records can be crucial in establishing the nature of your income from crypto-assets.
4. Tax Reporting and Compliance
- For investments, only 50% of your capital gains are taxable.
- Business income from crypto activities is 100% taxable.
- If you're operating a crypto business, certain expenses related to your operation may be deductible.
See: UK Leading Charge in Global Crypto Tax Crackdown
Conclusion
The CRA's stance on crypto-assets is evolving. Staying informed about new guidance and regulations is imperative for compliance and for optimizing your tax situation.
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