Cryptocurrency and taxes in canada is a complicated subject
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Simplifying Cryptocurrency and Taxes in Canada

Is Crypto Taxed in Canada?

The short answer, Yes. The Canada Revenue Agency (CRA) is quite transparent about the fact that crypto is subject to income tax.

It is important to note here that crypto is considered a commodity by the CRA and not cash. Bitcoin and other cryptocurrencies are also not recognized by traditional banks and brokerages as legitimate currencies. This will be useful as you read through the guide.

As crypto is a relatively new commodity, tax implications have and continue to evolve. The CRA has a full guide for cryptocurrency users and tax professionals. That being said, crypto and tax are complicated subjects and we would advise speaking to a tax professional for further questions and information.

When Do You Owe Taxes on Crypto?

From a high-level perspective, you owe taxes when disposing of your crypto. Examples can include:

  • Selling or trading it
  • Giving it as a gift
  • Converting it to government-issued currency, such as Canadian dollars
  • Using it to buy goods or services

Other types of tax implications involving crypto include:

  • Mining cryptocurrency
  • Being paid by your employer in cryptocurrency
  • Staking crypto in Proof-of-Stake currencies

Because cryptocurrency is considered a commodity, simply buying and storing the crypto in a wallet will not trigger a taxable offense.

Most people will pay tax on cryptocurrency gains from the disposition of crypto assets. When filing your income tax return, you will need to know how to value your cryptocurrencies. Valuing the crypto depends on whether it was used as capital property or inventory. The CRA has more detailed information on the difference between the two.

Transferring crypto is tax-free. (Source: Koinly.io).

Types of Taxes That Apply

  • Business Income

Generally, if disposing of cryptocurrency is part of a business, the profits you make on the disposition or sale are considered business income and not a capital gain. Buying a cryptocurrency with the intention of selling it for a profit may be treated as business income.

  • Capital Gains

If the sale of a cryptocurrency is not for carrying on a business, and the amount it sells for is more than the original purchase price or its adjusted cost base, then the taxpayer has a capital gain.

  • Goods and Services

Where a taxable property or service is exchanged for cryptocurrency, the GST/HST that applies to the property or service is calculated based on the fair market value of the cryptocurrency at the time of the exchange.

Source: Canada.ca/en/revenue-agency

How To Calculate and Report Crypto On Your Taxes?

It is very important to keep track of all financial records of your activities relating to your cryptocurrency. This information is vitally important when filing your tax returns for the 2022 fiscal year.

Keeping full records of all crypto-related activities is absolutely necessary when filing tax returns.

First and foremost, you should figure out whether your cryptocurrency earnings are capital gains or business income.

Making profits while trading cryptocurrencies, such as Bitcoin or Ethereum is considered a capital gain, much in the same respect of stocks and gold.

What does this look like? We’ll outline an example scenario below:

Johnny purchases 1 Bitcoin, which at the time was valued at $2,000. He then decides to hold onto it for two years, during which the value of 1 Bitcoin comes to $5,000. Johnny decides to convert his lone Bitcoin into Canadian dollars.

The difference in value when Johnny bought and sold is:

$5,000 – 2,000 = 3,000

Johnny has earned $3,000 from his cryptocurrency trading activity. His earnings are due to capital gains and thus he is taxable on 50% of the value, or $1,500.

If Johnny had earned his 1 Bitcoin by mining, it would be a different scenario and actually be considered as business income. The CRA considers 100% of the amount you make from mining crypto for tax purposes and must be reported on your returns using a T2125 form.

Avoiding Tax on Crypto

You cannot outright avoid all taxes, but there are ways to reduce your tax bill. This may seem obvious, but at the moment you cannot directly invest in cryptocurrency through a Registered Retirement Savings Plan (RRSP) or a Tax-Free Savings Account (TFSA).

BUT, you can buy into an Exchange-Traded Fund (ETF) that invests in Bitcoin through a brokerage in these registered accounts.

The gains on crypto ETFs in your RRSP are not taxed, provided you do not convert them to cash and withdraw the money. For TFSAs, your gains from crypto ETFs are not subject to tax on withdrawals.

These crypto ETFs track certain coins and ultimately you would not own the actual coins, but shares in the ETF.

Donating Crypto to Charity

Donating crypto is rather interesting because it is viewed as a commodity, not as a currency, which complicates matters. An example of this is detailed below:

You buy 1 BTC in December 2019 for $5,000. You then donate this BTC to a registered charity in December 2022 when the fair market value of BTC is $20,000.

According to the CRA, the charity you donate to can only issue a $5,000 receipt for your donation and your donation is a disposition. You’ll need to pay Capital Gains Tax on the difference in value, so $15,000.

Can The CRA Track My Crypto?

Part of the essence of cryptocurrency is its anonymity. It’s almost 2023 and we still do not know the identity(s) of Satoshi Nakamoto, the founder and creator of Bitcoin. It is along these same lines that it may seem that the CRA will not find out if someone does not report their earnings or dispositions.

The reality is, the CRA is very capable of tracking your income and finding out if you did not report all your income through audits and investigations.

The consequence of failing to report any instance where crypto is taxable is the same with Canadian dollars: tax evasion. This should be avoided at all costs and it is wise to report your earnings as accurately and honestly as possible.

Bitcoin Taxation in Canada Still Evolving

It is important to understand that cryptocurrency is still a relatively new innovation for investors. The CRA does provide a detailed guide on the tax obligations associated with crypto.

An area that could receive some attention is the possibility that a single Bitcoin transaction can include thousands of sub-transactions inside it. The idea of keeping track of thousands of transactions seems rather daunting for a single individual. Possibly there may be a solution to this in the future.

Another example is the lack of consistency in accounting methods for Canadian crypto businesses, whether they use the First In First Out or Weighted Average methods.

That said, the CRA is continuing to develop and correctly detail taxable instances for crypto.

While much of the phrasing used by the CRA may not correctly correspond to the phrasing used in the cryptocurrency space, it is evolving and becoming easier to understand and apply than in prior years.

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HoneyBadger Comment on FTX / Alameda

We are writing this post in regards to the recent news about Alameda / FTX. HoneyBadger assures its customers that we have no relation to FTX whatsoever. 

This is because of HoneyBadger’s non-custodial business model. We do not store assets on behalf of our customers unless requested to do so. Any crypto you buy at our kiosks or online is sent and stored securely in our customers’ own wallets. They control their own assets and we have no access to it.

This serves as an opportunity to highlight the benefits of buying cryptocurrency from us rather than through an exchange. You buy coins from us and we send them to you. Simple.

All transactions completed with HoneyBadger are instant and we never leverage customer assets since we do not hold any. We assure you that any assets you buy from us will be readily available to you whenever you need them.

HoneyBadger firmly believes in the saying, “not your wallet, not your coins”. The company started in 2016 with one mission, to make cryptocurrency accessible to all Canadians. Once our customers buy it, they own it. 

If you have any questions or concerns, please feel free to contact us.

FINTRAC Money Services Business registration: click here.

 

 

 

 

 

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Best Way to Buy Bitcoin in Canada
Buying Crypto, Education, Finance

What is the Best Way to Buy Bitcoin in Canada?

There are a lot of options when it comes to investing in cryptocurrency, but what is the best way to buy Bitcoin in Canada?

The good news is there are plenty of methods to choose from so there is something for everyone. Below we have outlined the pros and cons of 10 different ways to purchase crypto. We have also given each one a score out of five for the following categories: convenience, security, and value.

Read on to find out the best way to buy Bitcoin in Canada for you.

How can I buy Bitcoin in Canada?

The good thing about living in a relatively crypto-friendly country like Canada is there are lots of options to exchange fiat currency for Bitcoin and other cryptocurrencies like Litecoin and Ethereum.

The first decision you have to make is whether you want to trade online or in person at a physical location. That’s right, you can actually swap cold hard cash for cryptocurrency!

The next step is to choose a payment method. In a short space of time, trading platforms have expanded their ways to pay exponentially. While it may seem intimidating at first, don’t fear! We have compiled some of the most popular options out there to help you make up your mind.

Crypto gift cards

Crypto gift cards just like any gift card you might buy at a normal retail store. The main difference is you can’t buy goods and services with it. Instead, you can send someone a digital gift card with crypto assets from your own wallet or by buying a certain amount with fiat currency.

Pros:

  • Potential to increase in value: A crypto gift card is essentially a hot wallet, meaning it holds a certain amount of crypto on it. This means the value could increase if you hodl it.
  • Great gift idea: Whether you are looking for a present for a Bitcoin maximalist or someone who knows next to nothing about crypto, a gift card is a fun and easy gift idea. The recipient doesn’t even need a bank account. All they need is a crypto wallet.

Cons:

  • Lack of flexibility: Once you buy a gift card using fiat, you lock in your chosen coin. If the recipient is more into altcoins, for example, you’d probably be better off just sending them some cash.
  • Not secure: If a gift card gets lost in the mail, there’s not much you can do to retrieve your coins. Similarly, if it gets stolen, someone could easily extract the value for themselves. This is a lot riskier than simply sending it from your wallet.

Convenience: 3/5

Security: 1/5

Value: 3/5

Bitcoin ATM

Bitcoin ATMs, also known as Bitcoin kiosks or BTMs, enable you to exchange cash for BTC, Litecoin, Ethereum, or other cryptocurrencies in person. Although they are different from the machines you would find at a traditional bank, just like an ATM, you can deposit or withdraw cash. The main difference is you buy cryptocurrency when you deposit cash and you sell it when you make a withdrawal.

Bitcoin ATMs are a great option because they save a lot of the hassle of going through lengthy online sign up processes and they are one of the easiest methods to use.

Pros:

  • Simple to use: It doesn’t get much easier than inserting cash into a machine and instantly buying your cryptocurrency of choice. All you need is cash, a phone, and a digital wallet. This makes it a great way to explore the market without the hassle of creating an account with an online exchange.
  • Direct: There is no middleman at all if you buy from an ATM. It’s a direct transaction so there’s no waiting for funds to arrive from your bank or for an online exchange to approve your transaction.
  • Secure: Bitcoin ATM providers are regulated by FINTRAC. If you are unsure about whether the machine you are using is legit, you can search for the name of the company on FINTRAC’s registry for peace of mind your transaction will be secure.

Cons:

  • Must have cash: If you don’t happen to have cash on you, there are not a lot of options out there to buy at a machine. Fortunately, there are ways you can still transact without cash, such as via Interac® e-transfer.
  • Fees: one of the drawbacks of machines is that trading fees are usually higher than online exchanges. Of course this all depends on your personal preference and plenty of people prefer to use Bitcoin ATMs for the convenience and ease of use.

Convenience: 5/5

Security: 5/5

Value: 3/5

OTC Desk Locations

OTC, or over-the-counter, involves buying cryptocurrency via a broker, either in person or virtually. This option is ideal for investors looking for a personalized service.You speak directly to an account manager who provides advice and handles the trade for you.

The downside is you usually have to spend a certain amount to qualify, however, using private exchange services makes sense for large volume trades. 

Pros:

  • Personalized service: Having someone else place a trade on your behalf removes a lot of the stress involved in buying Bitcoin.
  • Expert advice: OTC brokers usually have experience when it comes to making trades. If you’re new to the world of cryptocurrency, expert advice can help maximize your investment.

Cons:

  • Fees: At the end of the day, you are paying for a service with OTC, and this is reflected in the slightly higher fees you pay.
  • Large volume: OTC is designed for people with large sums to invest in Bitcoin, meaning it is not suitable for the average customer.

Convenience: 5/5

Security: 5/5

Value: 3/5

Purchase Bitcoin direct from a seller

There are forums and posts on sites like Facebook Marketplace, Reddit, and Craigslist (That’s right! Remember Craigslist?) as well as niche sites where people will literally sell you Bitcoin. Of course, there are risks involved because you’re essentially buying from a stranger.

It is possible to find cheaper rates, but this method is more labour intensive than other alternatives. When you buy from a reputable company, you do not need to scour multiple websites for a cheaper deal, customers know exactly what to expect every time.

Pros:

  • Bargain deals: People who buy crypto this way are usually looking to squeeze every satoshi they can out of a deal. It is possible to find some great rates, especially if you find a motivated seller.

Cons:

  • Risky: Buyers take on a lot of risk when they buy directly from a seller online. Often there is no way of knowing if the seller will deliver what they promise.
  • Time consuming: Searching through page after page to find the best deal consumes a lot of time and effort.

Convenience: 1/5

Security: 1/5

Value: 3/5

INTERAC® e-Transfer

INTERAC® e-Transfer is arguably the best way to buy Bitcoin in Canada. It is as easy as sending money to a friend, it takes just a few minutes, and the fees are relatively low. Transactions are secure when you buy Bitcoin via e-Transfer from a reputable company and service is convenient and fast.

The sign up process is much shorter for e-transfer than it is for online crypto exchanges like Newton or Shakepay, which can take hours or even days to go through. Similarly, you don’t have to wait what seems like an age for a bank wire transfer to fund your account.

Pros:

  • Fast: Transactions are usually seamless and completed in a matter of minutes.
  • Secure: So long as you are buying from a trusted source, you can rely on the proven INTERAC® e-Transfer infrastructure, so you know your funds will be safe.
  • Simple: All you need to get started for transactions below $1,000 is a phone number and there are no extra hoops you have to jump through like there are for online exchanges.

Cons:

  • Limited transaction size: A downside to using e-Transfer is your bank will usually limit the amount you can send in one day. So long as you only plan to purchase Bitcoin below a few thousand Canadian dollars in value, however, this option is perfectly suitable.

Convenience: 5/5

Security: 5/5

Value: 3/5

Debit

Buying digital currencies with a debit card is a simple way to join the cryptocurrency world. It works just like making a standard purchase online. All you need to do is pick a trustworthy trading platform, sign up for an account and enter your card details.

The downside of debit transactions is that not all banks allow it and some operators will flag crypto purchases as fraudulent. This can lead to long, frustrating delays.

Pros:

  • Fast: Most exchanges can process transactions quickly.
  • Simple: The sign up process usually takes a few minutes, unlike online exchanges.

Cons:

  • Bank restrictions: Banks can sometimes get involved and prevent purchases from going through

Convenience: 3/5

Security: 5/5

Value: 3/5

Credit

You should tread carefully when buying crypto with a credit card. Customers should avoid making speculative purchases and only spend what they know they can pay back comfortably.

One of the key drawbacks of using a credit card is the fees. Banks usually charge more for purchases of cryptocurrency on credit because of the inherent risk the borrower might not be able to pay it back.

Having said that, if you’re responsible and know what you’re doing, buying Bitcoin with a credit card is as equally straightforward as using a debit card.

Pros:

  • Convenient: Just like debit transactions, the process is usually fast and simple.

Cons:

  • Fees: There are cheaper options out there that are just as fast and convenient.

Convenience: 3/5

Security: 5/5

Value: 1/5

Bank wire transfer

If the fees involved with using a credit card put you off and you have some time on your hands, bank wire transfers are a cheaper alternative. There are usually no bank fees involved in transferring money to fund your crypto account, however, whether you run into problems with your bank is another question.

Bank transfers can take days to go through, especially if you are a first time buyer. This can be annoying to say the least, especially if you miss out on an opportunity with a Bitcoin price fluctuation, for example.

Pros:

  • Free: Bank transfers to fund your account usually cost nothing.

Cons:

  • Time: Wires sometimes take a day or two to go through.

Convenience: 1/5

Security: 5/5

Value: 3/5

Apps

Some mobile apps, such as Wealth Simple, offer Bitcoin investment options. The apps are usually user-friendly and if you are familiar with how they work, funding your account is simple enough.

It is important to exercise caution when choosing which app to go with. Make sure the app allows you to send BTC to your crypto wallet. Some providers only allow you to keep funds in their custody wallet, meaning you do not have total control over your crypto asset.

Pros:

  • User-friendly: If you’re new to crypto, the apps will help to guide you through the whole process.

Cons:

  • Lack of control: Some apps only allow you to keep funds in their custody wallet.

Convenience: 2/5

Security: 3/5

Value: 3/5

Online exchanges

If you have looked into buying cryptocurrency at all you are bound to have come across online exchanges like Binance, Coinbase, and Kraken. These trading platforms are usually good for beginners and offer a wide range of altcoins in addition to the more established cryptocurrencies.

While they are a lot of people’s first step into the crypto universe, many people soon start looking for alternatives. Users are put off by lengthy sign up processes, privacy concerns, and poor customer service.

Pros:

  • Guidance: Most sign-up processes, while lengthy, are well designed and walk the user through step-by-step.

Cons:

  • Slow: If you are using an exchange for the first time, it can take a long time to get your account approved and funded.
  • Invasive: Some online exchanges require you to surrender a lot of information before you can start trading.

Convenience: 3/5

Security: 3/5

Value: 3/5

Conclusion

There is no shortage of methods you can use to buy Bitcoin. INTERAC® e-Transfer is the best way to buy Bitcoin in Canada from an overall perspective. It scored highest in our ratings and is generally fast, secure, and good value.

The ultimate deciding factor in what defines “best”, however, is you. That is the great thing about cryptocurrency today: with more ways to buy than ever before there is bound to be an option that fits your needs and level of knowledge.

Click here to buy using INTERAC® e-Transfer

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