How to Pay Taxes on Crypto Income in Canada: Your Complete 2024 Guide

Cryptocurrency isn’t just digital money—it’s taxable income according to the Canada Revenue Agency (CRA). As Bitcoin, Ethereum, and other digital assets gain mainstream adoption, understanding how to report crypto transactions correctly is crucial to avoid penalties. This guide breaks down everything you need to know about paying taxes on crypto income in Canada, from capital gains calculations to filing procedures.

## Is Cryptocurrency Taxable in Canada?
Absolutely. The CRA classifies cryptocurrency as **property**, not currency. This means every transaction—whether selling crypto for CAD, trading between coins, or earning rewards—can trigger taxable events. Even decentralized finance (DeFi) activities like staking or liquidity mining fall under tax scrutiny. Failing to report can lead to audits, interest charges, or penalties of up to 50% of unpaid taxes.

## Types of Crypto Income and How They’re Taxed
Canadian crypto taxes hinge on two categories:

– **Capital Gains/Losses**: Applies when you sell, trade, or spend crypto held as an investment. Only 50% of the profit is taxable. Example: Buying 1 ETH for $2,000 and selling later for $3,000 creates a $1,000 capital gain—$500 is added to your taxable income.

– **Business Income**: If you trade frequently or mine/stake crypto commercially, 100% of profits are taxable. The CRA considers factors like transaction volume, expertise, and profit-seeking intent.

Other taxable scenarios include:
1. Crypto mining/staking rewards
2. Airdrops and hard forks
3. Earning crypto as payment for services
4. Interest from crypto lending

## Step-by-Step: Calculating Your Crypto Taxes
Follow this process to determine what you owe:

### 1. Track All Transactions
Log every buy, sell, trade, and disposal with:
– Date and time
– CAD value at transaction
– Purpose (e.g., investment vs. business)
– Wallet addresses

### 2. Determine Your Adjusted Cost Base (ACB)
Calculate the average cost per unit of each cryptocurrency you hold. For example:
– Buy 0.5 BTC at $20,000 CAD: Total cost = $10,000
– Later buy 0.5 BTC at $30,000 CAD: Total cost = $15,000
– ACB per BTC = ($10,000 + $15,000) / 1 BTC = $25,000

### 3. Report Gains/Losses
When selling:
– Capital Gain = Selling Price – ACB
– Taxable Amount = 50% of Capital Gain

## Where to Report Crypto on Your Tax Return

– **Capital Gains**: File on **Schedule 3** of your T1 return. Detail each asset disposition.
– **Business Income**: Use **Form T2125** if mining/trading professionally.
– **Foreign Assets**: Holdings over $100,000 CAD must be declared via **Form T1135**.

## 5 Critical Record-Keeping Requirements
Maintain these records for at least six years:

1. Receipts for all crypto purchases
2. Exchange transaction histories
3. Dates and values of every transfer between wallets
4. Documentation of mining/staking rewards
5. Records of lost or stolen crypto (for loss claims)

## Avoid These Common Crypto Tax Mistakes

– **Ignoring small transactions**: Even $10 trades are reportable.
– **Mixing personal and business wallets**: Creates accounting chaos.
– **Forgetting airdrops/hard forks**: These count as income at fair market value.
– **Misclassifying business income**: Frequent traders often owe more tax.
– **Using USD values without conversion**: Always use CAD equivalents at transaction time.

## Crypto Tax FAQs for Canadians

### Do I owe taxes if I haven’t cashed out to CAD?
Yes. Trading BTC for ETH or using crypto to buy goods triggers capital gains taxes based on CAD value at the time of the transaction.

### How does the CRA know about my crypto?
Exchanges like Coinbase share user data with tax authorities under international agreements. The CRA also conducts targeted crypto audits using blockchain analytics.

### Can I deduct crypto losses?
Capital losses offset capital gains. Unused losses carry forward indefinitely or back three years. Business losses reduce other income.

### Is NFT trading taxable?
Yes. NFT sales follow the same capital gains rules as cryptocurrencies. Minting NFTs may also generate business income.

### What if I use crypto tax software?
Tools like Koinly or CoinTracker automate ACB calculations and generate CRA-ready reports. Still, verify outputs for accuracy.

Staying compliant starts with meticulous tracking. Consult a crypto-savvy accountant if you have complex transactions, and always report honestly—the CRA is increasing enforcement in the digital asset space. With clear records and this guide, you can navigate crypto taxes confidently.