How to Report Crypto Income in Canada: A Complete Tax Guide

Understanding Crypto Taxes in Canada

The Canada Revenue Agency (CRA) treats cryptocurrency as a commodity, not legal tender. This means every transaction can trigger taxable events. Whether you’re trading Bitcoin, earning Ethereum through staking, or receiving NFTs, you must report gains on your annual tax return. Failure to comply risks penalties, interest charges, and audits. This guide breaks down Canada’s crypto tax rules into actionable steps.

Taxable Crypto Events: What You Must Report

Not all crypto activity is taxable, but these common scenarios require reporting:

• Selling crypto for fiat currency (e.g., converting Bitcoin to CAD)
• Trading between cryptocurrencies (e.g., swapping ETH for SOL)
• Using crypto to purchase goods/services (treated as a disposal at fair market value)
• Earning crypto income through mining, staking, or airdrops (taxable as business or property income)
• Receiving crypto as payment for freelance work or services
• Gifting crypto exceeding $1,000 in value (may trigger capital gains)

Calculating Crypto Gains and Losses

Canada taxes crypto profits under two categories:

• Capital Gains: For investors (50% of gains are taxable). Calculate using: Proceeds of Disposition – Adjusted Cost Base (ACB)
• Business Income: For frequent traders/miners (100% taxable at marginal rates)

ACB Calculation Example: If you bought 1 BTC for $50,000 and later sold it for $70,000:
Capital Gain = $70,000 – $50,000 = $20,000
Taxable Amount = $20,000 × 50% = $10,000

Note: ACB must include all acquisition costs (transaction fees, exchange charges).

Step-by-Step Reporting Process

Follow these steps to file crypto taxes correctly:

1. Gather Records: Compile transaction history from all exchanges/wallets showing dates, amounts, and CAD values.
2. Calculate Gains/Losses: Determine ACB for each asset and net gains using FIFO (First-In-First-Out) method.
3. Categorize Income: Separate capital gains from business income (frequent trading/mining).
4. Complete Tax Forms:
   • Capital gains: Schedule 3
   • Business income: Form T2125
   • Foreign assets > $100k CAD: T1135
5. File with T1 Return: Report net gains on Line 13000 (capital gains) or Line 13499 (business income).

Crypto Record-Keeping Requirements

The CRA requires detailed records for 6 years. Essential documentation includes:

• Dates and descriptions of all transactions
• CAD value at transaction time (use exchange rates from Bank of Canada or credible sources)
• Wallet/exchange addresses
• Receipts for purchases and sales
• Records of mining/staking rewards
• Calculations for ACB and capital gains

Common Crypto Tax Mistakes to Avoid

• Ignoring small transactions: Every trade/use triggers tax events regardless of amount.
• Miscalculating ACB: Forgetting to include fees or incorrect FIFO application.
• Not reporting foreign exchanges: Platforms like Binance must be declared if holdings exceed $100k CAD.
• Confusing business vs. capital income: Day-trading often qualifies as business income.
• Omitting DeFi activities: Yield farming, liquidity mining, and loans are taxable.

FAQ: Crypto Taxes in Canada

Q: Do I pay taxes if my crypto loses value?
A: Yes, you can report capital losses to offset gains. Unused losses carry forward indefinitely.

Q: How does the CRA track crypto transactions?
A: Through crypto exchange reporting (under Section 231.6 of Income Tax Act), blockchain analysis, and audits. Non-compliance risks penalties up to 200% of taxes owed.

Q: Is staking income taxable?
A: Yes. Rewards are taxed as income at fair market value when received. When sold later, capital gains apply.

Q: Can I use crypto tax software?
A: Absolutely. Tools like Koinly or CoinTracker automate calculations and generate CRA-compliant reports.

Q: What if I forgot to report past crypto income?
A: File a voluntary disclosure to potentially avoid penalties. Consult a crypto-savvy accountant immediately.

Q: Are NFT sales taxable?
A: Yes. Treated like other crypto assets—capital gains apply upon sale or exchange.

Always consult a tax professional for complex situations. Keep learning—CRA guidelines evolve as crypto adoption grows.