Trading profits realized by selling crypto assets result in half of the gains being taxed in Canada. Though the potential for big returns is luring Canadians into the cryptocurrency market, cashing comes with heft and mostly unexpected tax bill.
Mehran Sedigh, a cryptocurrency tax expert based in Toronto, says that many clients have been audited by Canadian Revenue Agency (CRA) for misfiling returns.
Sedigh notes that clients struggle to calculate their gains and losses. The CRA considers cryptocurrencies commodities as Income Tax Act, and income gained from crypto transactions are treated as either capital gains or business income.
Sedigh says this categorization leaves most of his clients confused- to qualify as business income, filers must carry on their daily trading in a commercially profitable manner. And in case you file as capital gains, selling a crypto asset will result in half of the profit being taxed.
Apart from the above two trading scenarios, taxation may also apply when cryptos are exchanged for goods or services. In such situations, CRA considers a barter trade has occurred. The market value of the asset is taken into account in taxation.
“Any time you get rid of a specific type of cryptocurrency, that’s considered a taxable event. It’s taxed on the amount the cryptocurrency has grown in value, from the time you purchased it to the time you get rid of it.’
However, crypto investors in the US have found a creative way to use tax laws to their advantage. That process includes wash trading where investor locks in losses and offset future gains.