Reporting Your Capital Gains as a Crypto-Asset User in Canada: 2024 Tax Guidelines

Posted on by Tax Partners
Tax Accountant Cryptocurrency
08
Oct

Introduction

As cryptocurrencies and other crypto-assets continue to gain popularity, it's essential for Canadian taxpayers to understand the tax implications of their crypto transactions. Crypto-assets, such as Bitcoin, Ethereum, and Tether, are digital assets that exist on a cryptographically secured distributed ledger. 

The Canada Revenue Agency (CRA) requires taxpayers to report any capital gains or losses arising from the disposition of crypto-assets. 

This article provides a comprehensive guide on how to report your capital gains as a crypto-asset user in Canada, updated with the latest tax laws and guidelines as of September 2024.

Understanding Capital Gains and Losses from Crypto-Assets

What Constitutes a Disposition of Crypto-Assets

A disposition of a crypto-asset occurs when you:

  • Sell cryptocurrency for fiat currency (e.g., Canadian dollars).
  • Trade or exchange one cryptocurrency for another.
  • Use cryptocurrency to purchase goods or services.
  • Gift cryptocurrency to someone else.
  • Transfer ownership of cryptocurrency in any way.

Calculating Capital Gains

A capital gain arises when the proceeds from the disposition of a crypto-asset exceed your adjusted cost base (ACB) and any reasonable expenses associated with the disposition.

  • Adjusted Cost Base (ACB): Generally, the original cost of acquiring the crypto-asset, adjusted for any additional costs such as transaction fees.
  • Proceeds of Disposition: The value you receive from disposing of the crypto-asset, typically the fair market value at the time of the transaction.
  • Capital Gain Calculation: Capital Gain = Proceeds of Disposition - (ACB + Outlays and Expenses)

Reporting Capital Gains

  • Taxable Capital Gains: In Canada, only 50% of the capital gain is taxable. This amount should be reported on your income tax return.
  • Reporting Method: Use T1 Schedule 3 – Capital Gains (or Losses) to report your taxable capital gains from crypto-asset transactions.

Example

If you purchased 1 Bitcoin for CAD 30,000 and later sold it for CAD 50,000:

  • ACB: CAD 30,000
  • Proceeds of Disposition: CAD 50,000
  • Capital Gain: CAD 50,000 - CAD 30,000 = CAD 20,000
  • Taxable Capital Gain: 50% of CAD 20,000 = CAD 10,000

Understanding Capital Losses from Crypto-Assets

Calculating Capital Losses

A capital loss occurs when the proceeds from the disposition are less than your ACB and any associated expenses.

  • Capital Loss Calculation: Capital Loss = (ACB + Outlays and Expenses ) - Proceeds of Disposition

Using Capital Losses

  • Allowable Capital Losses: Only 50% of the capital loss is considered the allowable capital loss.
  • Offsetting Gains: Allowable capital losses can be used to offset taxable capital gains in the current tax year.
  • Carrying Losses Forward or Backward:
    1. Carry Forward: Unused capital losses can be carried forward indefinitely to offset future capital gains.
    2. Carry Back: Capital losses can be carried back up to three years to offset past capital gains.

Example

If you purchased 2 Ethereum for CAD 6,000 and sold them for CAD 4,000:

  • ACB: CAD 6,000
  • Proceeds of Disposition: CAD 4,000
  • Capital Loss: CAD 6,000 - CAD 4,000 = CAD 2,000
  • Allowable Capital Loss: 50% of CAD 2,000 = CAD 1,000

Valuing Your Crypto-Assets

Fair Market Value (FMV)

  • The CRA generally accepts the fair market value of a crypto-asset at the time of the transaction for tax purposes.
  • Determining FMV: Use the value from a cryptocurrency exchange that is available to the public and reflects a reasonable assessment of the market value.

Exchange Rates

  • If the transaction is conducted in a foreign currency or involves a cryptocurrency not directly quoted in Canadian dollars, you must convert the value to CAD using the exchange rate at the time of the transaction.

Record-Keeping Requirements

Maintaining accurate records of your crypto-asset transactions is crucial for tax compliance.

Essential Records to Keep

  1. Transaction Details:
    1. Date and time of each transaction.
    2. Number of units and type of crypto-asset.
    3. Value in Canadian dollars at the time of the transaction.
    4. Description of the transaction and the other party involved (even if it's just their crypto-asset address).
  2. Wallet Information:
    1. Addresses of all your digital wallets.
    2. Beginning and ending balances for each crypto-asset in each wallet for the year.
  3. Supporting Documents:
    1. Receipts and invoices for purchases and sales.
    2. Exchange records and transaction IDs.
    3. Records of transaction fees and other expenses.

Best Practices

  • Regular Backups: Download and securely store transaction histories from exchanges and wallets regularly.
  • Organized Records: Keep records organized by tax year to simplify the reporting process.
  • Software Tools: Consider using cryptocurrency tax software to track transactions and calculate gains or losses.

Tax Filing Deadlines

Important Dates for 2024 Tax Year

  • Payment Deadline: April 30, 2025 – Any balance owing for the 2024 tax year is due.
  • Filing Deadline for Most Individuals: April 30, 2025
  • Filing Deadline for Self-Employed Individuals: June 15, 2025 – If you or your spouse/common-law partner are self-employed, the filing deadline is extended, but any taxes owing are still due by April 30, 2025.

Correcting Previous Reporting Errors

If you realize that you have made errors or omissions in your previous tax returns related to crypto-asset transactions, you can take steps to correct them.

Methods to Correct Errors

  1. Change Your Tax Return:
    1. You can request a change to a previously filed tax return using the CRA's My Account online service or by submitting Form T1-ADJ.
  2. Voluntary Disclosures Program (VDP):
    1. If the error involves unreported income or significant omissions, you may use the VDP to disclose this information voluntarily.
    2. Benefits include potential relief from penalties and partial interest relief.

Conditions for VDP

  • Voluntary Disclosure: The CRA must not have initiated any enforcement action regarding the information.
  • Complete Disclosure: You must disclose all relevant information.
  • Penalty Applicable: The disclosure must involve a potential penalty.

Conclusion

Understanding and accurately reporting your crypto-asset transactions is essential to remain compliant with Canadian tax laws. By keeping detailed records, correctly calculating your capital gains and losses, and meeting all filing deadlines, you can ensure that you fulfill your tax obligations and avoid potential penalties.

If you have any questions or require further assistance, our team of accountants at Tax Partners can help you. 

Please contact us by email at info@taxpartners.ca or by phone at (905) 836-8755 for a FREE initial consultation appointment. 

You may also visit our website (www.taxpartners.ca) to learn more about other services we offer in Canada, US and abroad.