In Canada, cryptocurrency gains and losses are taxed as either capital gains or business income. This depends on how the cryptocurrency is being used and what your intent was when purchasing or selling it.

Here’s a breakdown:

1. Capital Gains Tax

If you hold cryptocurrency as an investment (i.e., buying and holding it for potential appreciation), the gains are typically taxed as capital gains. This means:

• 50% of the gain is taxable. For example, if you make a gain of $1,000, only $500 is included in your taxable income. Note that prior to the proroguing of Parliament the intent of the Liberals was to increase the capital gain rate to 2/3 taxable. This is currently on hold.
• Capital losses can offset capital gains. If you make a loss, you can use that loss to reduce any capital gains for tax purposes.

2. Business Income

If you’re trading cryptocurrency regularly or using it for activities like mining or as part of a business, then the CRA (Canada Revenue Agency) might classify the profits as business income rather than capital gains. In this case:

• The entire profit is included in your taxable income.
• Business expenses related to earning the income may be deductible (e.g., mining equipment, transaction fees, etc.).

3. Mining

Cryptocurrency mining is considered a business activity in Canada. The profits from mining are taxed as business income. If you’re mining and selling the cryptocurrency, the amount you earn is fully taxable as income, but you can deduct related expenses, such as:

• Equipment costs (e.g., computers, electricity, etc.).
• Operating costs.
• Maintenance.

4. Personal Use Property Exception

If you buy cryptocurrency and use it primarily for personal reasons (like for goods or services), then it may be treated as personal use property, which has a $1,000 exemption for capital gains. However, if you sell or trade it for a profit, the CRA will still expect you to report it.

5. Reporting Requirements

Regardless of whether your gains or losses are from capital gains or business income, you must report all cryptocurrency transactions to the CRA, including trades, sales, and exchanges. Keep records of:

• The date of each transaction.
• The amount spent or received in Canadian dollars.
• The purpose of the transaction (investment vs. business activity).

Important Notes:

• Exchanging cryptocurrencies (e.g., Bitcoin for Ethereum) is also taxable and considered a trade for tax purposes.
• The tax rate depends on your overall income, as crypto gains are taxed based on your income tax bracket.

It’s always a good idea to consult with a tax professional to ensure you’re complying with the tax laws and maximizing your deductions!