How Should Earnings on Cryptocurrency Be Taxed?
Cryptocurrency has become a popular investment, but many investors and traders are unaware of how crypto earnings are taxed. Whether you buy, sell, trade, or mine cryptocurrency, you are subject to taxation by the Canada Revenue Agency (CRA). Understanding how crypto taxes work can help you stay compliant and avoid penalties.
Let’s break down how cryptocurrency earnings are taxed in Canada and what you can do to optimize your tax strategy.
✅ How Does Canada Tax Cryptocurrency?
The CRA treats cryptocurrency as a commodity, meaning it is not legal tender but is subject to taxation when used in transactions, trading, or as an investment.
Your crypto earnings may fall under one of two categories:
📊 1. Capital Gains Tax (For Investors)
If you buy and hold cryptocurrency as an investment, you will be taxed when you sell or dispose of it. The profit you make is classified as a capital gain, and only a portion of it is taxable.
✔️ 50% of the capital gain is taxable (until 2025).
✔️ 66.67% taxable after 2025 (new capital gains inclusion rate).
✔️ Losses can be used to offset other capital gains.
✔️ Holding crypto long-term may allow you to reduce taxable events.
🔹 Example: If you bought Bitcoin for $10,000 and sold it for $20,000, you made a $10,000 gain. If the inclusion rate is 50%, only $5,000 is taxable at your marginal tax rate.
💼 2. Business Income Tax (For Frequent Traders & Businesses)
If you trade, mine, or earn cryptocurrency as part of a business, your earnings are considered business income and taxed at your regular personal or corporate tax rate.
✔️ Business crypto earnings are fully taxable (not just a percentage like capital gains).
✔️ Frequent crypto trading may be considered day trading, making all profits taxable as business income.
✔️ Expenses related to crypto mining or trading (such as electricity, equipment, and software) may be deductible.
🔹 Example: If you actively trade cryptocurrencies daily and earn $50,000 in profit, the full amount is taxed at your income tax rate instead of being treated as a capital gain.
🔄 Taxable Crypto Transactions
Certain crypto-related activities are considered taxable events in Canada. These include:
✔️ Selling cryptocurrency for fiat currency (CAD, USD, etc.)
✔️ Trading one cryptocurrency for another (BTC to ETH, etc.)
✔️ Using cryptocurrency to buy goods or services
✔️ Mining cryptocurrency (taxable as business income)
✔️ Receiving crypto as payment for goods/services
✔️ Staking and yield farming earnings
💡 Pro Tip: Keep track of every transaction, including dates, values, and purposes, to simplify tax filing.
📉 Non-Taxable Crypto Transactions
Not every crypto transaction is taxable. The following scenarios do not trigger taxes:
✔️ Buying and holding cryptocurrency (without selling it).
✔️ Transferring cryptocurrency between your wallets.
✔️ Gifting cryptocurrency (taxes apply when the recipient sells it).
✔️ Holding losses (not realized until sold).
📑 How to Report Crypto Taxes to the CRA
To stay compliant with Canadian tax laws, follow these steps when filing your taxes:
1️⃣ Keep records – Maintain transaction history, including dates, values, and wallet addresses.
2️⃣ Determine tax treatment – Identify whether your earnings are capital gains or business income.
3️⃣ Use tax software – Consider crypto tax tools to automate calculations.
4️⃣ File your return – Report capital gains on Schedule 3 and business income on T2125 (if applicable).
5️⃣ Pay any owed taxes – Ensure compliance to avoid penalties or interest charges.
🚀 How to Reduce Your Crypto Tax Liability
Looking for ways to legally minimize your crypto taxes? Here are some strategies:
✔️ Hold investments for longer periods to delay taxable events.
✔️ Offset capital gains with capital losses by strategically selling underperforming assets.
✔️ Use RRSPs and TFSAs for tax-efficient investments (though crypto itself is not eligible for these accounts).
✔️ Deduct eligible expenses (for crypto mining, business-related trading, and transaction fees).
✔️ Consult a tax professional to develop a personalized tax strategy.
🎯 Stay Compliant and Optimize Your Crypto Taxes
Understanding how cryptocurrency earnings are taxed is essential to avoid CRA penalties and maximize your after-tax profits. Whether you’re an investor, trader, or business owner, proper tax planning can make a huge difference.
At Roy’s Tax & Accounting Services, we specialize in crypto tax compliance, tax planning, and CRA audit support. Let us help you navigate Canada’s evolving crypto tax landscape.
📞 Call us today at 905-458-4445, 416-676-ROYS, 416-676-7697
📧 Email us at info@roystaxservices.com
🌐 Visit us at roystaxservices.com
✨ Book a consultation today and take control of your crypto tax strategy!
