Canada was early to recognize the important role crypto would play in the global economy. In 2014, Canadian policy makers were ahead of other nations in establishing laws that defined virtual assets and created a framework for their regulation.
Since that date, the number of Canadians holding crypto assets has dramatically increased. This trend has mirrored the growing number of contractors in Canada in the aftermath of the Covid19 pandemic: at present, one in ten Canadians perform some degree of remote work.
As more remote workers demand the option to get paid in crypto, it becomes increasingly important for contractors and employers alike to stay up-to-date on complicated Canadian crypto tax laws.
How To Report Your Crypto Earnings
In Canada, the taxation of cryptocurrency is a complex issue, and the rules and regulations surrounding it need to be navigated carefully. The Canadian Revenue Agency, or the CRA, has declared that virtual currencies are classified as a commodity rather than a currency.
Not all transactions with crypto are considered taxable, so before moving forward, it is necessary to establish when a transaction constitutes a taxable event:
- If a cryptocurrency is sold or given as a gift.
- If a cryptocurrency is traded or exchanged.
- If a cryptocurrency is converted into fiat currency.
- If a cryptocurrency is used to pay for goods or services.
For taxable transactions, gains are generally treated as either business income or as a capital gain. The process of determining which tax bracket a crypto transaction falls under is done by assessing a variety of factors involved in the transaction.
Transactions that fall under the classification of business income can be determined by the following features:
- Buying, selling, or exchanging a virtual asset as part of a business plan.
- Buying a cryptocurrency with the intention of selling it to make a profit.
- Actively and consistently buying, selling and trading crypto in the form of a professional day trader.
On the other hand, for a crypto transaction to be taxed as a capital gain, it will most likely have the following characteristic:
- Crypto that is bought and sold by an individual, separate from any business use or transaction.
Ensuring Compliance While Paying Crypto Taxes
Determining whether your transactions in crypto are considered capital gains or business income is the first, and most critical step, in ensuring Canadian crypto tax compliance.
This is due to the fact that in Canada, 50% of capital gains realized from the sale or exchange of an asset are subject to taxation whereas 100% of business income is taxable.
When paying capital gains taxes, the taxpayer is required to add half of the total amount of capital gains earned that year to their taxable income. The resulting amount will be used to calculate the tax liability for the year in which the transaction took place.
The Income Tax Act also states that when a taxpayer incurs a capital loss from the sale or exchange of an asset, they can use that loss to offset any capital gains they have earned in the same year. To do this, the taxpayer needs to subtract half of the capital loss amount from their taxable capital gains. This reduces their overall taxable income and can lower their tax liability for the year.
The rate at which both capital gains and business income are taxed is the same as the Federal Income Tax and the Provincial Income Tax. These rates range from 15%-33% depending on the earnings of a given year.
Any wages paid or received in crypto in Canada are considered barter transactions by Canadian law. Income on crypto earned must be reported in Canadian dollars at the fair market value determined at the time of the transaction. This income falls under the Excise Tax Act and is subject to income tax.
Crypto Payroll and Compliance with Rise
Rise is a crypto payroll platform that leverages the advantages of blockchain technology for automated payouts and guaranteed compliance. The future of payroll is on-chain, instant and global.
You can issue payments as a company based in Canada or to your global contractors working in Canada with the ease and security of Rise Pay. Determining whether your crypto earnings will be subject to capital gains taxes, business income tax, or excise tax can be tricky. For companies paying taxes on barter transactions for services compensated in crypto there is a high margin for error.
Skip the costly noncompliance and leave it to Rise to issue your automated, instant crypto payments to contractors with all tax considerations managed along the way.
Learn more about Rise’s options for payroll in crypto, stablecoins, fiat currency or a combination of the three.