Cryptocurrency is a type of digital currency or payment that may be used to buy and sell goods and services on various online platforms. To work, cryptocurrencies rely on a sort of technology known as a blockchain- a form of a highly secure database that records and maintains transactions. For income tax purposes, cryptocurrency is considered a capital asset, which means it is treated the same as any other gain on the sale of a capital asset (Canada Revenue Agency, 2019). To calculate capital gains on cryptocurrency, simply subtract the selling price of your cryptocurrency at the time of the transaction from your adjusted cost base. The adjusted cost base, or ACB, is simply the asset’s book value, or its original acquisition price.
Cryptocurrency is Taxed as Capital Gains
In Canada, cryptocurrency is taxed similarly to any other commodity. When cryptocurrencies are exchanged for each other, the challenge is this creates a taxable event and a disposition. Half of the gains are taxed and applied to your taxable income for the year. For example, if I acquired a cryptocurrency for $2,000 and subsequently sold it for $4,000, I would report a $1,000 capital gains (50 percent of $2,000), which would be added to my income and taxed at my marginal tax rate. However, this is only applicable if you are a regular trader. If you are a day trader who owns crypto for short periods of time, the CRA may consider your trading to be a business and you will be required to file taxes as such (Canada Revenue Agency, 2019). As a result, your capital gain becomes your business income, which is not subject to the 50 percent rule. Much of the challenge in recent years has been on how to calculate the adjusted cost base when only partial currencies are exchanged or liquidated. The adjusted cost base then becomes challenging, and online platforms help assist and keep tracking the weighted average of the adjusted cost base calculations.
We have been helping clients across the USA and Canada in terms of calculating their adjusted cost base when it comes to cryptocurrencies, and we are gladly welcoming new clients. Please get in touch by booking a consultation.
This website provides general information on various accounting and tax issues. The information is not intended to constitute professional advice and may not be appropriate for a specific individual. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice. Neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information herein. Readers should always consult with their professional advisor with respect to their particular situation.