Bitcoin isn’t seen as a fiat currency in Canada. Instead, it’s viewed as a commodity, which is a capital property - like a stock or a rental property.
Taxation of Bitcoin
The Canada Revenue Agency treats bitcoin—and digital currencies generally—as a commodity for income-tax purposes.
As a result, bitcoin transactions are governed by the same laws as barter transactions, which involve exchanges of one good for another.
Accordingly, a profit or loss resulting from a bitcoin transaction will typically be categorised as either (i) income or loss from a business or property, or (ii) a capital gain or loss. The distinction has significant tax ramifications.
While just half of a capital gain is taxable, the full amount of company or property income is.
On the other hand, whereas losses from business or investment activities are fully deductible, losses from capital losses are only partially deductible.
While Canadian authorities reject bitcoins as constituting money, a person who receives bitcoins as payment for goods or services may still have tax obligations.
It’s possible that the recipient must declare the bitcoin payment as income on their tax return. In a similar vein, he or she might be required to gather and submit GST/HST on behalf of the buyer.
You might think that the purported anonymity of a bitcoin transaction will allow you to safely keep this income hidden from the government. This, however, is incorrect.
According to recent news reports, some bitcoin exchanges voluntarily give local authorities access to their customer data without a warrant. Furthermore, tax officials themselves use techniques to break the bitcoin system.
Calculation of Bitcoin Taxation
Unlike crypto capital gains where only half your profits are subject to Capital Gains Tax, the same isn’t true for crypto income.
To determine how much income tax you’ll owe, multiply the fair market value of the cryptocurrency in Canadian dollars on the day you got it by the combined rates of your federal and provincial income taxes.
Final Thoughts
If you failed to fulfil the Canadian tax obligations arising from your bitcoin transactions, you may qualify for the Voluntary Disclosures Program.
With the help of this programme, you can make tax adjustments without fear of CPA penalties or prosecution.