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How to Claim Cryptocurrency on Your Income Tax in Canada

Learn how to file your bitcoin in your taxes. Find out what to do with your cryptocurrency when filing your income taxes with the Canadian Revenue Agency (CRA). This relatively new currency has certain guidelines on taxation.

When It comes to income tax, the CRA treats cryptocurrency like a commodity, so it is important to always keep track of any income and expenses you receive in Bitcoin or other cryptocurrency. Any income from transactions in cryptocurrency is usually treated as business income or capital gain.

What is Bitcoin or Cryptocurrency?

The CRA treats bitcoin transactions differently, depending on the nature of the transaction. The CRA taxes bitcoin transactions as income if you use them in barter transactions, but it taxes bitcoin profits as capital gains if you hold them as an investment. Additionally, the CRA also taxes any gains over $200 you make during currency conversions as capital gains.

What is Cryptocurrency Worth?

To figure out the value of a transaction, you must use a reasonable record and keep records to show you figured out the value. When you use cryptocurrency to pay for goods or services, the CRA treats it as a barter transaction.

Imagine that you accept a digital currency as payment for a batch of 50 widgets. You normally sell 50 widgets for $100, so this is the fair market value for your widgets. In this case, you claim $100 in revenue or income for the transaction.

This happens regardless of what kind of digital currency you use, because the government of Canada only recognizes currency or coins made by the Canadian government as legal tender.

Bitcoin as Specified Foreign Property

The CRA views bitcoin as “specified foreign property” under Section 233.3 of the Income Tax Act. Often, people make the mistake of thinking foreign property only refers to real estate, but the CRA’s definition includes many other types of assets.

Funds in foreign bank accounts, shares of foreign corporations, interests in foreign mutual funds, land and buildings outside of Canada, life insurance issued by a foreign issuer, and even precious metals held outside of Canada all carry the foreign property classification. As such, the CRA now considers bitcoin part of this category.

How to Report Digital Currency Payments on Your Taxes

After a digital currency transaction, you must convert the digital currency to Canadian dollars using the currency rate on the day of the transaction. You report that amount as income to the CRA. If you spend digital currency on business expenses, you should also convert the funds before reporting the business expense on your return. The CRA recommends using exchange rates from the Bank of Canada. Use Form T2125 to report business income for your taxes.

Reporting Bitcoin Holdings on Tax Returns

As of 2018, individual residents and certain entities must file a Form T1135 (Foreign Income Verification Statement) if they hold foreign assets, such as bitcoin, with total costs of more than $100,000 at any point during the year. Keep in mind that the CRA bases the $100,000 on Canadian dollars, not the fair market value of the bitcoin.

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