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Canadian Tax Ramifications in Connection with Exchanging Cryptocurrency for Cash

Canadian Tax Ramifications in Connection with Exchanging Cryptocurrency for Cash

Canadian Tax Ramifications in Connection with Exchanging Cryptocurrency for Cash

Source: Miller Thomson
Author: Colleen Ma

There are now over 1,300 cryptocurrencies available online, Bitcoin being the most popular, with new initial coin offerings, or “ICOs”, being announced on what seems like a daily basis. Bitcoin made headlines at the end of 2017 as the price skyrocketed from $4,000 in October to $19,000 in mid-December, dropping down to $13,000 within weeks. There are now many ways to exchange cryptocurrency for cash, including ATMs or online exchanges such as Coinbase. Although it may be tempting to spend all that cash, don’t forget to put some away to pay your taxes.

What is cryptocurrency?
According to Oxford Dictionary, cryptocurrency is “a digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank.”

What does the Canada Revenue Agency say?
In December 2013, the Canada Revenue Agency (“CRA”) stated that virtual currencies, such as Bitcoin, will generally be treated as a commodity for the purposes of the Income Tax Act (Canada) and will generally not be considered similar to dollars, pounds, euros, yen, pesos, or any other currency issued by a government of a country.

When a person exchanges cryptocurrency for cash, the resulting gain (essentially the difference between the purchase price and the sale price) may be considered a capital gain or business income. One of the reasons the distinction is important is because the effective tax rates that are applied to capital gains and to income from a business are different.

Read the full article here.

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