So you invested in BitCoin or some other really cool cryptocurrency and the value keeps going up and up! You move things around in the ‘bit space’, using BitCoin to buy other currencies as they come onto the market. It’s been fun, interesting and it looks like you are going to make a killing at some point financially. You can even use your cryptocurrency to make some purchases (though its early days).
Everything is cool. You are making money. You have studied this market and feel you understand enough to be a savvy investor. At some point you want to cash in – convert your crypto currency into cash. Now we run into CRA issues.
Canada Revenue Agency rules dictate the amount of taxes due on earned income, including profit from investments. The rules apply for cryptocurrency profits. The first big difference from cashing in RRSPs or shares, is that the cryptocurrency has no national affiliation, so they don’t know our tax rules. Further, they don’t offer any help with ‘taxing at source’ deductions for the taxes owed. So you had better keep some cash aside for year end so you can pay the taxes.
Now maybe you are thinking that CRA doesn’t know you made cryptoprofit. Since the cryptocurrency is not regulated by SEC, they don’t report anything to them, right? So how would they know? Maybe I can get away with not paying taxes?
Don’t expect to get away with it. Decades ago Canadian banks and government got together and agreed on what they would communicate to each other as obligations to be licensed in Canada. So the government knows where our money is, where it comes from and where it goes, all tracked and reported by our banks. So as soon as the cryptoprofit appears as cash in your bank account, they know. Or suspect. CRA investigators are relentless in their pursuit of those trying to avoid paying ‘their share’. So don’t take a chance and just pay what you are supposed to and avoid the hassle. You accountant can help you determine how much tax you should set aside. And there is some information on the CRA website, but as you will already know, few institutions understand this market. Talk it over with a tax consultant.
Copetti & Co. understands cryptocurrency and the challenges of reporting profits and staying on top of taxes due.
for help with your tax planning.