What you should know about the cryptocurrency tax in Canada

If you have determined that your crypto earnings qualify as business income, you must complete Form T-2125, Statement of Business or Professional Activities. You may also want to consult a tax professional – if you run a crypto business, you should be able to deduct a variety of business expenses such as subscriptions, memberships, your internet connection and expenses related to your home office. “Only the business portion can be deducted,” says Maneisha, “not the personal portion.”

If your crypto business income (after expenses) is negative, this is considered a non-capital loss that can be deducted from any other sources of income you had that year (including employment or investment income) to reduce your taxes. If your total income isn’t enough to claim the loss deduction, you can carry back non-capital losses up to three years and apply them to previous years’ tax returns, or carry them forward up to 20 years to reduce your future taxable income.

Capital gains or losses are reported on Schedule 3 of your personal income tax return. Remember that as with other investments, capital losses can only be used to offset capital gains. These profits do not have to come from other crypto investments. “You can reap losses from one sector to offset gains in another,” says Storozuk.

Finally, remember the superficial loss rule, also known as the 30-day rule. “If you buy crypto – or stocks – and sell at a loss, and you or a connected person, such as For example, if your spouse buys it back within 30 days, it will not be considered a loss for tax purposes,” says Maneisha.

In a word, no. “You can’t hold cryptocurrencies in registered tax-protected accounts like RRSPs and TFSAs,” Maneisha says. If you want to speculate on crypto markets within such accounts, you can opt for crypto-backed ETFs and other related investments instead.

Yes, non-fungible tokens (NFTs) are taxable, and the CRA considers the same factors as when evaluating crypto activity. Again, keep detailed records of your transactions and consult a tax professional if you need advice.

If you have never reported your crypto earnings to the CRA, you may be at risk of unpaid taxes, penalties and/or interest on your capital gains or business income. Correcting your tax affairs voluntarily can help you avoid or reduce these charges.

One last thing to keep in mind when preparing your tax returns: The CRA does not accept cryptocurrency payments. So if you owe taxes this year, make sure you have enough cash on hand to wire your payment. “This has been shocking to a lot of people I speak to who have all of their wealth/liquidity tied up in crypto,” says Maneisha. “They didn’t know they had to withdraw money to pay their taxes.”