Was 2021 the year you became interested in cryptocurrency? Did you buy and sell to see if you could make some money? Perhaps you decided that mining cryptocurrency would be a good side gig. If you have been involved in cryptocurrency transactions, it is likely these could be taxable transactions.
Transactions involving cryptocurrency that result in income will result in either business income or capital gains, depending on the circumstances.
- If you are holding cryptocurrencies as an investment (buy, hold, sell), you record and track the cost when you purchase them and calculate a capital gain when you sell. Remember that the cost has to be converted to Canadian dollars at the time of purchase and sale.
- If you are in the business of buying and selling, or if you are mining cryptocurrency, you will report earnings as business income. If you are holding cryptocurrencies at the end of the tax year, it will be recorded as inventory. You can either value the inventory at the original cost or at the fair market value at the end of the year. Once you select an inventory method, that will be your method going forward.
If you have costs associated with your cryptocurrency business, such as computer hardware used in mining, you should also track those costs and plan to claim them against the related income.
The Canada Revenue Agency’s guidance on cryptocurrency continues to evolve. Please reach out to your trusted tax advisor to discuss your situation in detail and ensure you are appropriately reporting income relating to cryptocurrency transactions.