Are you planning to buy and sell cryptocurrencies (virtual currency) or NFT (virtual art) and you know what you have to report? As a resident or deemed resident of Canada, you are required to report your worldwide income (employment, business, investment income, etc.) If you fail to report earned income, you risk penalties, interest and even imprisonment depending on the size of the undeclared amounts. Taxation is done at the time of DISPOSITION (SALE) of the cryptos or NFTs.
Processing
The treatment of cryptocurrency or NFT is the same. The government treats it as a commodity for the purposes of the Income Tax Act. This means that any transactions will be treated as business income (loss) or capital gain (loss), depending on the situation. Capital gains are taxed at 50%, while business income is taxed at 100%, which depends on your total income earned in the year. Therefore, the tax is lower when it is reported as a capital gain.
Business income or capital gain?
How do you know if you should report business income or capital gains? If you have one or a few transactions and the transactions are occasional, the treatment will be as a capital gain. However, if you have several transactions in a year and you make a living from this activity, you will have to declare it as business income. If you are unsure of the treatment, ask your CPA.
When should you tax yourself?
Buying or owning crypto/NFT is not taxable. However, tax impacts are created in the following situations:
Selling or donating cryptocurrency.
Trading or exchanging cryptocurrency, including disposing of one type of cryptocurrency to obtain another.
Converting cryptocurrency into government-issued currency, such as Canadian dollars.
Using cryptocurrency to purchase goods or services.
Is it possible to put crypto/NFT into an RRSP or TFSA?
No, cryptocurrency is a digital representation of value that is not considered legal tender. It operates independently of a central bank, central authority or government.
To learn more, visit the Canada Revenue Agency website. You can also contact us by making an appointment for a consultation with one of our Chartered Professional Accountants (CPA).