How to report crypto on your income tax return

If you have determined that your crypto income is considered business income, you must complete Form T-2125, Statement of Business of Professional Activities. You may also want to consult a tax advisor – if you run a crypto business, you should be able to deduct a variety of business expenses such as subscriptions, memberships, your internet connection, and expenses related to your home office. “Only the business portion can be deducted,” says Maneisha, “not the personal portion.”

If your crypto business income (net of expenses) is negative, it is considered a non-capital loss, which can be deducted from any other sources of income you had that year (including income from work or investment) to reduce your taxes . If you don’t have enough income in total to take advantage of the loss deduction, you can carry back non-capital losses for up to three years and apply them to previous years’ tax returns, or carry them forward for up to 20 years against your taxable income in the future.

Capital gains or losses are reported on Schedule 3 of your income tax return. Keep in mind that, as with other investments, capital losses can only be used to offset capital gains. Those profits don’t have to come from other crypto investments. “You can reap losses from one sector to offset gains in another,” Storozuk says.

Finally, keep in mind the superficial loss rule, also known as the 30-day rule. “If you buy crypto – or stocks – and sell it at a loss, and you, or an affiliate, such as your spouse, buy it back within 30 days, it’s not considered a loss for tax purposes,” says Maneisha.

Is there a way to protect crypto income from income tax?

In a word, no. “You cannot hold cryptocurrencies in registered tax-protected accounts, such as RRSPs and TFSAs,” Maneisha says. If you want to speculate on crypto markets within such accounts, you can opt for crypto-backed ETFs and other related investments instead.

Are NFTs also taxable?

Yes, non-fungible tokens (NFTs) are taxable and the CRA will consider the same factors as it does when assessing crypto activity. Again, keep detailed records of your transactions and consult a tax advisor if you need help.

If you’ve never reported your crypto earnings to the CRA, you could be lurking for unpaid taxes, penalties, and/or interest on your capital gains or business income. Voluntarily correcting your tax affairs can help you avoid or reduce these costs.

One last thing to note while preparing your tax return: the CRA does not accept payments in cryptocurrency. So if you owe taxes this year, make sure you have enough cash on hand to make your payment. “That was shocking to a lot of people I talk to who have all their wealth/liquidity tied up in crypto,” said Maneisha. “They didn’t realize they would have to cash out money to pay their taxes.”

This post What you need to know about cryptocurrency tax in Canada

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