How Are Cryptocurrencies Taxed? (Canada & USA Guide)

Cryptocurrency taxation can be confusing, as tax authorities treat digital assets differently from traditional currencies. If you buy, sell, trade, or earn cryptocurrency, you may be liable for taxes in Canada and the USA. This guide explains how cryptocurrency taxation works in both countries, helping you stay compliant with the law.

How Is Cryptocurrency Taxed?

In both Canada and the United States, cryptocurrency is not considered legal tender but rather a taxable asset. This means:

• Capital Gains Tax applies when you sell or trade cryptocurrency at a profit.
• Income Tax applies if you earn cryptocurrency through mining, staking, or payments.

The tax treatment depends on how you acquire, use, and dispose of crypto assets.

Cryptocurrency Taxation in Canada

In Canada, the Canada Revenue Agency (CRA) treats cryptocurrency as a commodity rather than currency. The tax implications depend on how you use it:

1. Capital Gains Tax (Buying & Selling Crypto)

• If you sell, trade, or convert cryptocurrency for fiat (CAD/USD) and make a profit, you owe capital gains tax.
• Only 50% of the capital gain is taxable.
• If you sell at a loss, you may be able to use it to offset capital gains.

Example:

• You buy 1 Bitcoin (BTC) for $30,000 and sell it later for $40,000.
• Your gain is $10,000, but only $5,000 (50%) is taxable.

2. Income Tax (Mining, Staking, and Payments)

• If you earn crypto from mining, staking rewards, or being paid in crypto, it is considered business or personal income.
• The value of the crypto at the time you receive it must be reported in Canadian dollars (CAD).

3. Crypto-to-Crypto Trades Are Taxable

• Exchanging Bitcoin for Ethereum or any other cryptocurrency triggers a taxable event.
• The CRA treats this as if you sold Bitcoin for CAD and used the funds to buy Ethereum.

4. GST/HST on Crypto Transactions

• If you operate a business accepting cryptocurrency, Goods and Services Tax (GST) or Harmonized Sales Tax (HST) may apply.

5. Crypto Gifts & Donations

• Gifting crypto to someone is considered a disposition and may trigger capital gains tax.
• Crypto donations to registered charities may qualify for tax deductions.

Cryptocurrency Taxation in the USA

The Internal Revenue Service (IRS) treats cryptocurrency as property for tax purposes, meaning it is subject to capital gains and income tax rules.

1. Capital Gains Tax (Selling & Trading Crypto)

• If you sell or trade cryptocurrency for a profit, you owe capital gains tax.
• Short-term gains (held under 1 year) are taxed as regular income (10%-37%).
• Long-term gains (held over 1 year) are taxed at a lower capital gains rate (0%, 15%, or 20%).

Example:

• You buy Ethereum for $5,000 and sell it for $7,000 after six months.
• The $2,000 profit is taxed as regular income.
• If held for over a year, you would pay the lower long-term capital gains tax.

2. Income Tax (Mining, Staking, and Payments)

• Crypto earned from mining, staking, or salaries is taxed as ordinary income at fair market value when received.
• If you later sell the earned crypto, capital gains tax also applies.

3. Crypto-to-Crypto Transactions Are Taxable

• Exchanging Bitcoin for another cryptocurrency (e.g., Dogecoin) is considered a taxable event.
• You must calculate the fair market value of both cryptos at the time of the trade.

4. Crypto Gifts & Donations

• Gifting cryptocurrency over $17,000 (2023 limit) requires a gift tax return.
• Crypto donations to charities can be tax-deductible, provided the nonprofit accepts them.

5. IRS Reporting Requirements

• The IRS requires you to report crypto transactions using Form 8949 & Schedule D.
• Some exchanges issue 1099 forms, and the IRS may receive reports of your transactions.
• Failure to report crypto taxes can result in penalties.

How to Stay Compliant with Crypto Taxes

1. Keep Detailed Records: Track every crypto transaction, including purchase price, sale price, date, and purpose.
2. Use Crypto Tax Software: Platforms like CoinTracker, Koinly, or CryptoTaxCalculator can automate tax calculations.
3. Report All Transactions: Even if you made a loss, report crypto activities to avoid IRS or CRA penalties.
4. Consult a Tax Professional: If unsure, seek guidance from a tax expert specializing in cryptocurrency.

Final Thoughts

Both Canada and the USA treat cryptocurrency as taxable property, requiring users to report capital gains, income, and transactions. While the rules can be complex, keeping detailed records and using tax software can make the process easier.