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Crypto Taxes: Capital Gain vs. Business Income

With capital gains and losses, only 50 per cent of the gain/loss is included, with business income, 100 per cent of the gain or loss is deductible against all sources of income.

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Buy Bitcoin > 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

Crypto Taxes: Buying & holding

Buying cryptocurrency is not a taxable event

Crypto Taxes: Selling & trading

The sales of crypto must be reported to CRA

Calculation of crypto gain or loss

Proceeds minus the average adjusted cost base

Reportable gain or loss

All crypto gains and losses are reportable

Books and tax records

Keep records of your cryptocurrency transactions

Capital gain vs. Business income

Capital gains and losses vs. Business income

Although none of the individual factors listed above may be sufficient to characterize the activities of a taxpayer as a business, the combination of a number of these factors may well be sufficient for that purpose. If any of these factors apply, it would be prudent to seek professional advice from a tax specialist to properly ascertain if the gain or loss is to be reported as capital or business.

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