There are a few layers to this question, Marc, so I’ll break down the answer into three parts: business income vs. capital gains, what records the Canada Revenue Agency (CRA) might ask for, and a few tips for tax time.
1. Are your crypto earnings business income or capital gains?
Here’s why the distinction matters: In Canada, business income and capital gains are taxed differently: 100% of business income is taxable, while only 50% of capital gains are taxable.
If you invest in bitcoin, ethereum or other cryptocurrencies, you may be wondering which activities are taxable. Buying and holding crypto isn’t a taxable event, nor is transferring crypto between two wallets you hold. But if you cash it out, sell it, spend it (including buying a different crypto) or give it away, that’s taxable.
To determine if your crypto earnings should be taxed as business income or capital gains, the CRA looks at different aspects of your trading activity, such as:
- How frequently you buy and sell crypto
- Your intentions when buying crypto
- How long you hold on to crypto assets
- The amount of time you devote to crypto trading activities
- Any business-related activities, such as preparing a business plan or promoting a service
“Business activities normally involve some regularity or a repetitive process over time. Each situation has to be looked at separately,” the CRA says on its website. “In some cases, a single transaction can be considered a business, for example when it is an adventure or concern in the nature of trade. Whether you are carrying on a business or not must be determined on a case by case basis.”
Learn more about how the CRA views cryptocurrency trading, as well as crypto mining and crypto staking, and bookmark MoneySense’s guide to crypto and taxes.
2. What crypto records might the CRA ask for?
Whether your crypto activity is considered a business, an investment or a hobby, you must keep detailed records for the previous six years, including:
- Dates of crypto transactions
- Cryptocurrency addresses involved in each transaction
- Transaction IDs (assigned by the crypto network)
- Receipt for each crypto purchase or transfer
- Prices of the crypto in Canadian dollars when you made the transaction
- Description of each transaction and the receiving party’s address
- Transaction records for all of the crypto exchanges or trading platforms you use
- Transaction records for all of your crypto wallets
- Legal and accounting costs, including tax software
If you are a crypto miner, you will need to keep the following records: