If you want to cash out crypto without paying taxes in Canada, $10,000 is a number that will be particularly important to you. Transactions above the $10,000 limit need to be reported to the CRA by the crypto exchanges themselves, while transactions below the $10,000 limit do not.
This means that, if someone were so inclined, they could avoid paying Canadian taxes by keeping their transactions below $10,000 and not reporting their gains or losses to the CRA. To be clear, this would be illegal and therefore not recommended—there is no legal way to cash out your crypto without paying taxes in Canada.
Alternatively, if you’re looking for the best way to invest in crypto in Canada, I recommend Kraken, my #1-ranked cryptocurrency exchange. Kraken has over 10 million satisfied users, offers the lowest trading fees in Canada by a mile, and is offering a $10 signup bonus (no referral code required) from now until December 22, 2024.
How Is Cryptocurrency Taxed In Canada?
The Canada Revenue Agency generally considers cryptocurrencies to be a commodity for tax purposes. This implies that any income you earn from cryptocurrency transactions is taxed as business income or as capital gain, depending on whether or not you are operating “like a company” or “as a hobby”.
In Canada, if you incur losses, they'll be treated as either business or capital losses for tax purposes. These two distinct types of income (business income vs. capital gains) are taxed differently in Canada: business income is 100% taxable, whereas 50% of capital gains can be taxed.
How To Cash Out Crypto Without Paying Taxes In Canada
Unfortunately, there's no legal way to avoid paying taxes on cryptocurrency in Canada. All transactions above $10,000 must be reported to the CRA by the exchanges directly, and individuals are legally obligated to report gains on transactions below $10,000 in their annual tax filing.
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When Do You Have To Pay Taxes On Crypto?
Holding cryptocurrency is tax-free. Most of the time, investors create taxable events through dispositions (AKA whenever they sell their cryptocurrencies). Some of these taxable events include:
- Exchanging cryptocurrency like Bitcoin for fiat currencies (such as CAD or USD)
- Trading a crypto token for another
- Purchasing goods and services with crypto
- Gifting cryptocurrencies
Are Stablecoins Taxable?
Despite the fact that stablecoins were created for transactions rather than investing, trading one for another is still considered a disposition subject to capital gains taxes. However, your capital gain in this case will most likely be close to zero.
Is Moving Cryptocurrency Between Wallets Taxable?
The transfer of cryptocurrency between wallets is not considered a taxable event. You should, however, keep track of these transfers to ensure that you can easily calculate your cost basis if a tax-related event occurs.
How Do I File My Crypto Taxes In Canada?
Keeping detailed records of your transactions is critical to properly reporting your taxes. You should be keeping a note of information such as:
- Dates for each crypto transaction
- Number of coins you bought, sold or traded
- The market value of each of your assets when you bought or sold them
- Crypto addresses and personal wallet information
- Crypto addresses of parties you’ve traded with
- Exchange records
- Accounting fees
- Legal fees
The Schedule 3 Form should be completed to report gains from cryptocurrency transactions. On the other hand, your business earnings should be recorded on the T2125 Statement of Business or Professional Activities.
Should I Pay Business Income Or Capital Gains?
You must pay business income tax if you operate a cryptocurrency company. Here are some indicators that you're running a crypto company:
- Operating in a “businesslike manner”, which includes keeping a business plan, annual reports, and making projections for investors
- Promoting a product or service
- Seeking to make a profit, even if it’s unlikely to do so in the short term
The boundaries between business and individual investing are sometimes blurred. Even a single transaction may have to be recorded as company income if the aim of the deal was to produce a short-term gain.
Cryptocurrency Tax Deductions
Even though there isn't a legal way to avoid crypto taxes in Canada, there are ways to minimize your overall tax burden when paying cryptocurrency taxes.
1. Writing Off Capital Losses
Capital losses can be utilized to offset capital gains and decrease your overall tax burden. Many investors take advantage of this by selling cryptocurrencies that have fallen in value to reduce their overall tax obligation. This technique is also known as tax-loss harvesting.
Keep in mind that the 50% rule for capital gains also applies to capital losses. Investors can only deduct 50% of their losses, while businesses may take a deduction of 100% of their losses from their income.
Also, keep in mind that the Superficial Loss Rule in Canada places limits on capital loss deductions. You can't deduct a capital loss if you acquire the same cryptocurrency 30 days before or after the sale.
2. Cryptocurrency Business Losses
If you operate a cryptocurrency company, any losses incurred are deductible from your revenue and may be used to reduce your tax bill for the year.
3. Transaction Fees
You may also take into account transaction costs incurred when moving and trading cryptocurrency to reduce the total capital gains on your portfolio. This may be the only benefit of expensive exchanges like Newton, Shakepay and Wealthsimple Crypto.
4. Business Deductions
If you operate a business that accepts cryptocurrency, you'll be able to deduct associated expenses. A mining company, for example, may claim costs for electricity and equipment.
What is Adjusted Cost Basis? (ACB)
The Adjusted Cost Basis (ACB) is the total average cost (in CAD) of each unit of a cryptocurrency at any given moment, as determined by the current market price. The Canada Revenue Agency (CRA) requires you to use the Adjusted Cost Basis (ACB) costing method to compute your gains and losses on cryptocurrencies.
This is different from how it's done in the United States, where several methods are permitted.
Cryptocurrency Mining Taxes
There are two main ways mined cryptocurrency can be taxed: either through hobby mining or through business mining.
1. Hobby Mining
If you're mining cryptocurrency as a hobby, you'll have to pay capital gains when you sell your coins. These coins will be classified as new assets with a cost basis of 0 since they were not previously owned. Business deductions aren't available to hobby miners.
2. Business Mining
Business mining generates tokens, which should be recorded along with any other normal company revenue. Related costs (such as electricity) may be deducted.
How Is DeFi Taxed In Canada?
The CRA has yet to offer clear direction on several of the typical problems associated with Decentralized Finance (DeFi).
However, because DeFi is a type of blockchain technology that uses smart contracts to facilitate payments and transfers between people, it's reasonable to believe that many of the same rules apply. The following are some examples:
- Crypto-to-crypto transfers
- Income from staking and yield farming
How Are Airdrops Taxed In Canada?
It makes sense to think that airdropped tokens are regarded as new assets in Canada. As a result, when tokens are sold, the entire proceeds are taxed as capital gains (for individuals) or income (for businesses).
In Summary
Unfortunately, converting crypto to cash without paying taxes in Canada is not an option. Investors and businesses may take various measures to minimize their tax burden on cryptocurrency transactions, but all investors are required to pay capital gains tax on all of their cryptocurrency trades.
Alternatively, if you’re looking for the best way to invest in crypto in Canada, I recommend Kraken, my #1-ranked cryptocurrency exchange. Kraken has over 10 million satisfied users, offers the lowest trading fees in Canada by a mile, and is offering a $10 signup bonus (no referral code required) from now until December 22, 2024.
How To Cash Out Crypto FAQs
Can the CRA track Bitcoin transactions?
Yes, the CRA has previously demanded and received client information from prominent Canadian crypto exchanges. Furthermore, tax agencies across the world use data matching to identify individuals with unknown wallets.
How much is Crypto taxed at in Canada?
The tax rate you pay on cryptocurrency in Canada is determined by a variety of factors, including whether you are trading it as a business or as a hobbyist, as well as your income level.
Can I pay my taxes in Bitcoin?
It is not possible to pay taxes in Bitcoin at this time. You may only make payments in Canadian dollars. You can settle your tax obligation online through a debit card, credit card, wire transfer, or PayPal.
