Canada Crypto Tax FAQs

Cryptocurrency has exploded in popularity over the past decade, but when tax season rolls around, many Canadians are left wondering: do I owe taxes on my crypto? Whether you’re moving coins to a cold wallet, swapping tokens, or cashing out, understanding how the CRA views these transactions is crucial.

In this article, we’ll answer some of the most frequently asked questions about crypto taxes in Canada. If you’re holding, trading, or investing in crypto, this article will help you stay compliant and minimize tax surprises. Let’s dive in!

1. If you move crypto from an exchange to a cold wallet, do you get taxed?

No, moving crypto between wallets – including from an exchange to your own cold wallet – is not a taxable event. Since you haven’t sold or disposed of the crypto, no capital gains tax applies.

2. If I buy crypto from my management corporation, is it automatically business income?

No, it’s not automatically business income unless your corporation is in the business of trading crypto. If the corporation holds crypto as an investment, any gains would typically be treated as capital gains, meaning only 50% of the gain is taxable at the corporation’s income tax rate (i.e., 50% tax on passive income).

To extract funds, you can either pay a taxable dividend to yourself, or use the Capital Dividend Account (CDA), where the tax-free portion of the gain can be distributed tax-free to shareholders.

3. Does the CRA know if I swap one coin for another on my Ledger device?

A Ledger device is a cold wallet that isn’t connected to the internet, and the CRA does not receive direct reports from Ledger.

However, if you ever move funds to an exchange or convert crypto to fiat currency, those transactions may be reported to the CRA. Cryptocurrency exchanges are mandated to report transactions over $10,000 to the Canada Revenue Agency. However, exchange platforms are required to divulge your information to the CRA if you are ever audited.

4. Is trading Bitcoin to Ethereum considered taxable by the government?

Yes. Any taxable event, such as a disposition, requires you to determine the value of the transaction for tax reporting purposes. The CRA considers a disposition of a crypto asset to be any of the following:

1. Trade or exchange it for government-issued currency or another type of crypto-asset
2. Use it to buy goods or services, or,
3. Transfer ownership of it by way of gift or donation

5. Is the CRA really taking 50% of my crypto profits?

Not exactly. Only 50% of capital gains are taxable, and that portion is taxed at your marginal tax rate. For example, let’s say you make $100 in profit. 50% of that profit ($50) is taxable. If your marginal tax rate is 40% ($50 x 0.4), you own $20 in taxes.

6. If I lose money on crypto, do I get 50% back?

No, the CRA doesn’t reimburse capital losses. However, you can use capital losses in crypto to offset capital gains from any other source, such as stocks or real estate. If you have no capital gains in the current year, you can carry losses back up to three years, or carry them forward indefinitely. Be aware that unused capital losses never expire, so your crypto loss can be to your benefit at some point in the future.

7. Do I owe capital gains tax if I sell investments in my TFSA or FHSA?

No, any gains inside a TFSA or FHSA are tax-free.

8. How does the CRA determine if crypto profits are business income or capital gains?

The difference between crypto being considered business income or capital gains is the nature of the business – essentially, are you in the business of trading crypto, or is this simply an investment alongside your regular business? This designation is very important because business income is 100% taxable, whereas capital gains are 50% taxable.

The CRA considers factors such as frequency of transactions, time spent researching and trading, and whether you’re operating like an investment business. The Canadian government’s website says the following about crypto businesses:

“As a resident of Canada, you’re generally considered to be carrying on a business if:

1. your course of conduct indicates that you are disposing of crypto-assets in a way capable of producing gains and
2. you conduct business activities with regularity or continuity.

However, there are other factors which may indicate that you are carrying on a business and the determination must be made case by case. For example, even an isolated crypto-asset transaction could count as business income when it is considered “an adventure or concern in the nature of trade.”

9. How do I minimize crypto taxes in Canada?

The three best strategies to minimize the taxes you pay on crypto would be to hold it (without a sale, there is no gain), to take your profits in a lower income year, and to carry back the loss (mentioned in #6 above).

10. Can I donate cryptocurrency to family members tax-free?

No. Gifting crypto is considered a taxable event. The CRA treats the transfer as if you sold it at fair market value on the date of the gift, triggering capital gains tax if applicable.

11. What if I’ve been trading crypto since 2017 but never reported anything?

You should consider filing under the CRA’s Voluntary Disclosure Program (VDP) before they contact you. If you’re accepted into this program, you can report past gains, avoid penalties, and potentially receive partial interest relief. However, you must still pay taxes owed.

To qualify for voluntary disclosure:

1. The disclosure has to be voluntary (as in, the CRA has never contacted you about unreported income)
2. The disclosure has to truthful and complete, and
3. The disclosure has to involve a penalty (which it does for unreported income).
4. The disclosure involves a tax filing that is at least one year past-due.

12. Should I create a holding company for crypto investments?

This can be a valuable strategy for protecting cash profits from potential creditors, both known and unknown. In this setup, your holding company owns shares in the operating company, and any excess cash generated by the operating company is transferred to the holding company as a tax-free dividend. From there, you can reinvest the profits into income-generating assets such as cryptocurrency or marketable securities, with the same capital gains tax rules applying.

13. Are cryptocurrency ETFs in a TFSA a good idea?

Yes, if they align with your risk tolerance. Any profits in a TFSA are tax-free, making it a great vehicle for crypto ETFs.

14. How do I file crypto gains with the CRA?

To report as an individual, you will have to do the appropriate calculation for the gain or loss and report it on your T1 Schedule 3 Capital Gains (or losses). Alternatively, business income from your crypto transactions should be reported on the T2125 Form.