Do you believe that the world will become freer? Do you envision a future where the concept of virtual currencies will eventually zap all such constructs as nations or governments? If you bet on a civilization more decentralized as it advances, you probably have already got your hands on the mining business. That said, between that which is and that which is yet, we still can’t use cryptocurrency to pay for our morning double-double, and to sustain a living with cryptocurrencies means exchange that begets attention from the CRA. While it’s impossible to trace transactions made with cryptocurrencies due to its security methods and built-in encryption, it only stays so if you plan on never using these cryptocurrencies as dollars. Any sources of income made to your bank account is considered taxable by the CRA, including one that is exchanged from cryptocurrencies.
How to report cryptocurrencies in your tax return?
For tax purposes, the CRA sees cryptocurrencies as commodities, whose trades are governed by sections under Barter Transactions. Under these sections, related income or expenses need to be claimed as the dollar amount in your tax return.
e.g. You run an I.T. consulting business and accept bitcoin as payment. Upon receiving the bitcoins, you need to lodge the amounts in dollars according to the exchange rate on the day of transaction and claim the same amounts in your tax return in the following year.
According to the CRA, in addition, income involving cryptocurrency may be treated as business income or a capital gain. If the income qualifies for a capital gain, related loss is considered a capital loss and may be eligible for tax deduction.
How to determine capital gains/loss from cryptocurrencies?
If you trade virtual currency like stocks, the profit made in the process must be claimed as capital gains.
e.g. You purchased 200 bitcoins for $50k and sold them for $62k six months later, you would have to declare a capital gain of $12k.
However, if you’re only a bitcoin aficionado who takes mining as a hobby but not a job, the earnings made from the hobby are NOT considered capital gains.
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