The Importance of Filing Crypto Taxes in Canada: Don't Risk Your Gains

As cryptocurrency continues to gain popularity, many Canadians are diving into the world of digital assets. However, it's crucial to understand that crypto investments come with tax obligations. Here's why filing your crypto taxes in Canada is not just important, it's essential.

Crypto is Taxable in Canada

‍The Canada Revenue Agency (CRA) treats cryptocurrency as a commodity, subject to either Income Tax or Capital Gains Tax (CRA: Information for crypto-asset users and tax professionals). Whether you're trading Bitcoin, Ethereum, or any other digital currency, your crypto activities are taxable. This can include buying, selling, trading, and even using crypto to purchase goods or services. Even crypto to crypto swaps create taxable events.

Consequences of Failing to Report

Failing to report your crypto earnings can lead to severe penalties:

• Fines up to 200% of taxes evaded, plus the evaded amount
• Potential jail time of up to 5 years (or 14 years for tax fraud)
• Travel restrictions

The CRA has a near 90% conviction rate for tax evasion cases, making it a risk not worth taking.

The CRAs Increasing Capabilities

‍The CRA is actively working with crypto exchanges to track investors' activities. As of January 2022, all money services businesses in Canada must report transactions over $10,000 to the FINTRAC, Canada's financial intelligence unit which shares information with the CRA. This means your crypto activities are more visible to tax authorities than you might think.

The CRA can also leverage the Federal Court to obtain client records from exchanges. In 2021, National Post reported that the Federal Court ordered Toronto-based Coinsquare to provide the tax agency with information about all its clients who had deposited or at any point held a total of at least $20,000 in an account since Jan. 1, 2013. Coinsquare also had to provide CRA with the number of transactions and total earnings between 2014 and 2020 for its 16,500 top active users. This resulted in 400 ongoing audits and examinations, including 125 “intent to audit” letters the CRA sent out to Canadians it believes did not report income obtained through cryptocurrency trading.

Proper Reporting Protects Your Investments

‍By accurately reporting your crypto taxes, you're protecting your hard-earned gains. Proper documentation allows you to:

• Track capital gains and losses effectively
• Potentially offset losses against other investment gains
• Identify tax planning opportunities
• Avoid costly penalties and interest charges
• Defend in the case of audit

Voluntary Disclosures Program

‍If you've previously failed to report crypto income, the CRA offers a Voluntary Disclosures Program (VDP). This program provides a chance to correct past omissions without facing severe penalties. However, the application process can be long and laborious (with successful applicants only given one chance of relief), so it's always better to stay compliant from the start.

Conclusion

‍Filing your crypto taxes in Canada is not just about following the law, it's about safeguarding your financial future. With the CRA's increasing focus on digital assets, staying compliant is more important than ever.

Don't risk losing your crypto gains to fines and penalties. Embrace transparency, keep accurate records, and when in doubt, consult with us at Metrics.

Remember, in the world of crypto, gains can be significant, but so can the consequences of tax evasion. Stay informed, stay compliant, and enjoy the benefits of your crypto investments with peace of mind.

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If you need help reporting your crypto assets, you can CLICK HERE to complete our contact form and book a meeting with one of our CPAs.

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