Crypto Taxes: Capital Gain vs. Business Income

Updated: March 24, 2021

Determining the tax treatment of Bitcoin and cryptocurrency gains and losses.

There is a difference in the tax treatment of capital gains and losses vs. Business income or loss. With capital gains and losses, only 50 per cent of the gains are included into income and only 50 per cent of the losses are deductible against capital gains. With business income on the other hand, 100 per cent of the gain is included into income and 100 per cent of the loss is deductible against all sources of income. It is important to determine if the cryptocurrency activities would be treated as capital or business.

CRA uses the following factors to ascertain whether a taxpayer's conduct indicates the carrying on of a business:

• frequency of transactions - a history of extensive buying and selling of cryptocurrencies or of a quick turnover of cryptocurrencies
• period of ownership – Cryptocurrencies are usually owned only for a short period of time
• knowledge of cryptocurrencies market - the taxpayer has some knowledge of or experience in the trading cryptocurrencies
• cryptocurrency transactions form a part of a taxpayer's ordinary business
• time spent - a substantial part of the taxpayer's time is spent studying the cryptocurrency market and investigating potential purchases
• financing - cryptocurrency purchases are financed primarily on margin or by some other form of debt
• advertising - the taxpayer has advertised or otherwise made it known that he or she is willing to purchase cryptocurrency