Bitcoin and cryptocurrency trading in Canada
Canada has many progressive advocates for crypto and blockchain technology. The central bank has involvement in a digital currency and there is firm regulation and a healthy crypto investment framework.
Law and crypto trading in CanadaLegal - existing crypto legislation
The good news is that investing or trading in cryptocurrencies such as bitcoin in Canada is legal and regulated. Just remember to keep clear and extensive records of your crypto transactions.
The Canadian Revenue Agency (CRA) places crypto assets in the category of foreign property and you’ll also have to complete a Foreign Income Verification Statement if your holding rises above a certain amount (check $100k). Lucky you!
If you want to trade bitcoin, there are a number of well-established crypto exchanges that make it easy and straightforward to buy, sell and invest in bitcoin (BTC) and other cryptocurrencies.Legal - forthcoming crypto legislation
Taxing cryptocurrencies in Canada
As with the UK and many other countries, there are no taxes on buying or holding cryptocurrencies in Canada. However, in line with many other countries when you sell, trade, gift or convert your Bitcoin it will be deemed to be a ‘disposal’ and subject to the prevailing income tax or capital gains tax. This applies to lending out your coins and getting interest on them.
Capital gains from the sale of cryptocurrency form part of your yearly income for the year, with only half of the pure capital gain subject to tax. So, whatever your income tax bill, only 50% of your crypto gains will be taxable.
Your cryptocurrency will be taxed as either capital gains or as income tax depending on whether you are investing as a business, in which case 100% of your business income is taxable, whereas only 50% of capital gains are taxable.
Tax when moving residency
As with any income, your bitcoin will come under the tax laws of the country you become legally resident in. If you set up a business to trade bitcoin, that business will come under the tax laws of the country it operates from.
Tax on mining
It’s highly technical and beyond the scope of most individuals, but mining bitcoins falls within standard Canadian tax law. It has different tax treatments depending on whether the mining is a hobby or a business activity, but if your hobby is making money regularly the tax man will want to know. On the plus side, the huge cost of mining in energy is allowable against gains.
Crypto financial services in Canada
Yes. There are funds becoming available in Canada that allow accredited investors to have exposure to the bitcoin market. Once again, it’s a higher risk investment and carries potentially higher fees. As yet most retirement schemes are for high net worth types, rather than the average consumer.
Several leading Canadian banks have trialed and run mobile apps for identity verification, using blockchain technology to give their customers the ability to prove their identity digitally. Many Canadian banks and institutions have been supportive of the concept of open banking and the advantages of blockchain technology.
Decentralized finance is on a roll and has been trialled successfully by some finance organisations for remittances, loans, stablecoins, and other core elements of the fiat world although it is not necessarily adopted wholeheartedly at a government level.
Using crypto in Canada
Canada has a range of places that accept bitcoin with outlets ranging across retail, software and gambling including the famous world brands such as Microsoft and Starbucks as well as a growing number of online retailers. In most cases it is possible to buy vouchers with your currency that may then be indirectly used with participating outlets.
You can’t avoid being eligible for tax on your bitcoin by gifting it to someone and the CRA will treat it as a disposition of property and any gain or loss reported. However, you can provide it as a gift to a registered charity for example and receive a valid tax receipt from the done. If you’re feeling generous, cryptocurrencies are becoming a popular gift and any established crypto exchange will be able to advise you on gifting your investment coin or coins to a third party.
Crypto regulation in Canada
There is some form of redress for cryptocurrency theft in Canada but any loss you suffer is calculated according to a complex set of rules that take into account prices and circumstances. If you want to go into detail the CRA has published a policy to explain these principles – but you’ll need plenty of black coffee while you read it.
There are strict regulation and compliance requirements, including for personal identification and tax declaration. When it comes to security of your hard-earned cash you need to do your homework. Many exchanges carry insurance against security breaches and potential loss of your assets so it’s a good idea to check these out if you are investing big time. Redress through the state could be quite complex.