The Canada Revenue Agency treats the taxation of Bitcoin and other cryptocurrency trading in a similar fashion to trading commodities or foreign currency. When trading Bitcoin/cryptocurrencies on capital account, your adjusted cost base must be tracked in order to calculate capital gains and losses.
This article will looks at the case for Canadians where trading is considered to be on capital account, rather than income account. The rules for determining whether trading is on capital account or income account are somewhat subjective. Some of the considerations the Canada Revenue Agency may use to determine that trading is on income account include the following:
- When the trading is characteristic of a professional trader
- Frequent trading or short holding periods
- Extensive knowledge and time spent researching the markets
Just like when buying and selling foreign currency, your ACB needs to be tallied and a capital gain or loss occurs whenever units are sold. A disposition is deemed to have occurred whenever:
- Units are sold for Canadian dollars
- Units are converted into US dollars or any other foreign currency
- Units of one cryptocurrency are exchanged for units of another cryptocurrency
- Units are spent on goods and services
AdjustedCostBase.ca can help you with calculating ACB and capital gains for Bitcoin and other cryptocurrencies.
Let’s look at an example:
- Buy 2.5 Bitcoins for CAD$3,226.95 in total on February 1, 2017
- Buy 3.8098 Bitcoins for CAD$5,470.87 in total on April 1, 2017
- Trade 1 Bitcoin for 22.55657 Ether on May 1, 2017 (where the value of 1 Bitcoin or 22.55657 Ether was CAD$13,951.22 at this time)
- Purchase goods valued at CAD$466.25 for 0.03342 Bitcoins on December 1, 2017
- Sell 4.5 Bitcoins for CAD$62,797.50 in total on December 1, 2017.
The first step to calculate gains on losses on AdjustedCostBase.ca is to create securities for each cryptocurrency you’ve traded. For this example, we create securities named “Bitcoin” and “Ether.” For further information on getting started on AdjustedCostBase.ca, and adding securities and transactions, see the following:
For the above example, you would input the following transactions on AdjustedCostBase.ca:
1. “Buy” transaction: 2.5 Bitcoins for $3,226.95 in total on February 1, 2017
2. “Buy” transaction: 3.8098 Bitcoins for $5,470.87 in total on April 1, 2017
3a. “Sell” transaction: 1 Bitcoin for $13,951.22 in total on May 1, 2017
3b. “Buy” transaction: 22.55657 Ether for $13,951.22 in total on May 1, 2017
4. “Sell” transaction: 0.03342 Bitcoins for $466.25 in total on December 1, 2017
5. “Sell” transaction: 4.5 Bitcoins for $62,797.50 in total on December 1, 2017
For simplicity transaction fees have been omitted, but these can be specified in the “Commission” field when adding transactions.
The transaction involving conversion from Bitcoin to Ether (3) corresponds to a sale of Bitcoin and a purchase of Ether. The amounts are based on the values in Canadian dollars. Even though the transaction did not involve converting Bitcoin into Canadian dollars and then converting Canadian dollars into Ether, the transaction is treated this way for the purposes of calculating adjusted cost base. This results in a capital gain for Bitcoin.
Similarly, the transaction involving spending Bitcoin (4) corresponds to a sale of Bitcoin. Even though the transaction did not involve Bitcoin units being converted into Canadian dollars followed by a purchase using Canadian dollars, the transaction is treated this way for tax purposes. This also results in a capital gain for Bitcoin.
Here are the results after inputting these transactions:
Transactions for Bitcoin
Transaction for Ether