Crypto taxes for Canadians

So this has come to my attention as a small business owner, how does taxation work in Canada for people who buy, hold and then cash out crypto? I’ve recently gotten into buying, holding and staking, and I own a sole proprietorship in construction. I’m familiar with the nuances of taxes for small business.

For my company, any money I spend on running the business is a deductible. This includes taxes, vehicle expenses, insurance, tools, materials etc. So one of my questions is, say you put 10 grand into say BTC, and it grows to say 10x to keep things easy for speculative reasons. When you cash out, do you pay tax on the gains minus the initial deposit, so you start with 10 g, it becomes 100 g, so you would deduct the 10 that you already paid taxes on, and so your taxable gains would be 90 g?

If this is the case, how can we reduce the amount of taxes we pay. Also, I’ve been hearing currency swaps are taxable events, which is kind of f***ed up, because we swap like crazy, I don’t know how I would keep track of all my swaps for tax reasons, it would be an astronomical task and pretty unrealistic to expect the average newbie to completely understand and execute these calculations on all their different exchange accounts without any error. It’d be a ridiculous task to try to sort out all the swapping and switching. It would make way more sense to just pay gains on when you cash out to your bank account. I’m not clear on the law regarding this stuff, and knowing Mr. Vosk does this shit full time, I’m very interested in hearing about how you manage your taxes in this, since you are full time and a lifer.

If there is a way to cash out without paying taxes, or how to pay less taxes, I’m all for it. It would be a kick in the nuts to find a jem of a source of secondary income, just to get completely f****d when you try to finally cash out and try to throw it into another sort of venture.

One option I thought about is to open a small business, and keep the crypto and fiat associated with the buisness in the buisness, and pay yourself out accordingly to keep your tax bracket low. Keep all your hardware purchase recipts, keep track of all your losses, possibly become a resident of a tax friendly region or country to cash out (if you made some crazy gains, this could be a good option). This is a pretty stressful consideration, but the sooner we get this locked down, the better off we will all be.

I’d imagine the average individual hasn’t even considered the tax implications of crypto, more or less treating it like the wild west. I’m pretty sure Canadian gambling gains aren’t taxed, which is a little off topic, but there is a lot of grey areas here. Another possible way to avoid paying taxes may be to purchase items which are stores of value or just valuable assets in themselves via spending crypto from a wallet without any KYC rules.

Something else which I would imagine will become more and more popular, is getting an accountant or lawyer, who is up to date on these details. Seeing as I’m going all out on sorting this out to stay legit, it’s a very high priority to stay out of trouble in the space. Advice on who to seek accounting assistance from is going to become a very hot topic in the next few years with the exponentially increasing adoption of crypto by the average individual.

Any collaboration and or advice on this would be very much appreciated! I feel this is very important for the community to become more aware of. If you could make a video on it (Directed at Mr. Vosk), that would be a very digestible way to discuss and or inform people about these nuances.

Stay crypto everyone! Live the dream!

The taxes related to crypto in Canada and the US are similar. The answer to your questions are every exchange or transaction of crypto has to be tracked and the gain or loss has to be calculated separately. Even if you exchange crypto to goods or services it is a transaction that is taxable. You mentioned that you owned a small business and you know taxes, consider refreshing your memory on the exchange of property or assets.

Switching between different countries fiat is different then crypto currencies. Crypto is considered property and it not treated like a currency. So crypto is the same as a hamburger or a towel. So if you sell a hamburger that cost you $2 to make for $4 you have a $2 gain that you have to recognize as income and pay taxes on. So if it is sold for fiat then only the business has a taxable event. If it is exchanged for crypto then both sides has a taxable event because it is a exchange of two pieces of property. Then if the business sells the crypto later it is another taxable event for them.

Some of the things that you made as suggestions to not have to pay the taxes would make you run afoul of the tax laws.

Crypto mining is a business that you recognize income at the Parker price the day you mine it and it’s basis is the same as the market price. Now you can deduct your business expenses that you used to produce the income. If you sell or exchange the crypto that you mined it is a taxable event and you would have to calculate the gain or loss from the transaction and report on your tax return.

There are ways to minimize your taxes when it comes to crypto currencies, they are much more complex to do and set up.

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As a new miner, am I correct that as long as I mine and dont sell, I dont have to declare/pay taxes. It is just when trading/selling the mined crypto I have to do that?

Exampel. If I mine 1 ETH and just holds it (within my crypto wallet). I just have to write down when every payout where made to my crypto wallet (price for x ETH payout at that time). This to calculate how much Ill have to tax when i sell it? Or I dont have to write down every payout cause the price when it was sent to my wallet is inrelevant when selling (change to FIAT currency or another crypto currency).

Sorry for the newbie questions. Just wanna make it right from the beginning.

Sidenote: This is just for private mining and not business

pezpeople

I hugely appreciate your input, and welcome any criticism to my rationale. Also, if there is any nation specific taxation differences, I feel like we should voice them to make sure people are clear as to the nuances of each particular region’s taxation law. This is an important conversation and whatever we learn here can help many others stay within the rules and help further legitimize this type of business venture.

I’m definitely not trying to argue or dispute, but trying to look at all angles so that anyone reading can follow along with us and make critical decisions on their own business practices. If there happens to be any financial professionals in the forum, please chime in, because we need some solid info so that we can all make the best decisions moving forwards.

See this is more or less my own confusion on the issue, as trading one crypto for another doesn’t seem like it should be taxable, because there is no transaction in $ (or whatever denomination your current residence taxes you in). I understand your point about trading property for property, but in the “normal” world, all of those transactions have a $ amount attached to them. And thinking deeper on the query, so do the cryptos at time of exchange. However, in the end, the only thing that matters is year end net gain vs year end net cost, otherwise you’d be paying taxes on all these little transactions in between which is just not practical. Whatever the business makes in fiat by the end of the year, minus all costs of doing business would be the more practical way to calculate. Anything that is swapped or left riding (I would assume) might not necessarily need to be calculated as a gain or loss technically because it hasn’t made it back to dollars or euros or yen or whatever. I mean, you don’t pay tax on the interest you earn at the bank (even though it’s a pitiful amount accreted), you don’t pay tax on the lottery (In Canada) and so far as I know, you don’t pay tax on the sale of your house (yet) because the taxman taxes your income before you put it down on the mortgage, and the mortgage charges you a premium for even having the loan out, and you basically pay for your house 3x by the end of the transaction, pre-sale anyways.

That would mean that only the initial cost (whatever you put in) be it purchasing crypto or buying equipment, hiring 3rd party services, or paying for power would all be calculated as initial costs, while only upon cashing out would you have to calculate the final net gain minus the initial investment. I could be hella wrong here, but this is more or less how small business taxes work. I’m in construction, not food or service, so it might be different for different businesses.

Where things get hard to track is when you only cash out a portion of your holdings (which correlate to a particular set of business costs) after having the pool grow for X amount of time (I would imagine), and that would most likely require quite a bit of tight book keeping. But as long as you have proof of all your transactions for any audit, I would imagine that you’d be in the right.

If a chunk is still riding, I’d say that you’d simply pay tax on THAT particular amount, only when you cash out, and depending on the tax year that your cash out lands on, will determing what amount of tax you pay on that amount. In that way, you can aim for favorable tax brackets when weighing the pros and or cons of cashing out any given amount on any given year.

Say you put $20000 into your business, and you cash out $70000 in the same calendar year. There is some switching and swapping in between, and there is an additional (market value of $10000 still riding). The way I’d be calculating that is at $70000 - $20000 = $50000. Anything that costs or cashes out in fiat in the year, gets tacked to the taxes for that year. The other $10000 either grows or shrinks, but there is business done on top of that amount, so the calculations do get really sticky because you claimed the business expense on that amount the year prior (if you happen to leave that amount in for many years, it would only make sense to claim tax on a “cashed out” amount, if you’ve already claimed expenses on that amount the year prior, no further deductions could be made from that capital gain). However, it could dump to $3000, or it could grow to say $20000, I’d imagine you still only pay tax on that amount once you transfer the funds to your bank account (which is all the CRA Or IRA, or whatever) will see, unless they start auditing all the exchanges you have and start coming to actually check how much equipment you own etc, (which is absolutely unrealistic considering how many people are starting to do this, and not making a full income off of it, more of a side hustle passive thing) BUT it is still 100% possible given the current financial state of… the state (govt).

This is where seeking the professional advice of a qualified lawyer or tax person may be a huge asset for any small crypto entrepreneur / business owner. Things get a little sticky when compared to doing business in other areas / industries. It’s super easy to just add up receipts and invoice totals and get a solid number. But once all of these highly variable factors come into play, it gets hairy AF.

I still think VOSK should chime in, seeing as this is his site and forum, and he does this full time, but I could understand why he may not want to chime in on a public forum about sensitive issues like this which affect him and his business personally. This may be a good topic for a private conversation in some cases.

I am of the mind that your business costs for the year will accrete on the year, and your total cashout amount will (probably?) go something like this

Investment inside the tax year, say 2021; $3500

Crypto cashed out in 2021 - $2500 and amount left “riding” market value is whatever. Say at the time $1000 for ease of # sake

So your business has taken a net loss of $1000 (but you still have ETH riding). This gets submitted with your other taxable income paperwork, you’ll need a accountant to help you with this (Or at least I’d recommend one). But your taxes for the year all factor in together, whether that means a total net gain or loss from your second business. If I’m correct, this all gets rolled into one final number, from which your final taxable income will be calculated.

Now 2022 is the next year.

It continues to grow and you spend another $1000 in electricity. You cash out the remainder of what you left riding plus an additional amount totaling $3500 in 2022

So, according to my current method of calculations (might be garbage, may be correct, not sure yet but makes sense to me);

Costs $1000

Cash $3500

Total taxable income for the year = Profit - Cost ($3500 - $1000)

Which would = $2500 of taxable income added to your regular income.

Small business income tax has to be done separately from your regular job’s taxes if they are separate sources of income. It’s a different tax form all together.

This may not be correct, but it’s how I’d see the numbers working out.

Some advice from someone who can give us a more certain answer would be much appreciated.

This was written very hurriedly before work, so I apologize for any difficulty when trying to decipher my rationale.

I can be more clear when I find myself with more spare time.