Cryptocurrencies: tax authorities are keeping an eye on your cryptos

This poses a problem for cryptocurrencies which must be valued at each trade. Unlike standard commodities, their price is volatile with markets differing around the planet.

Cryptocurrencies: tax and legal issues that should not be overlooked

Under the Income Tax Act, cryptocurrencies present new challenges in reporting. In addition, due to the nature of foreign currency exchanges, there are legal quagmires surrounding the purchase of crypto assets abroad.

While cryptocurrencies are generally taxed as capital gains, businesses profiting from their trade may see gains taxed as business income. Demonstrating this distinction may require expertise, particularly in the case of masternode maintenance.

Are your cryptocurrency gains treated as business income?

You are considered to be running a business if:

• You have a history of trades;
• Those are rapid purchases;
• You commit an important part of your time to the analysis of the market;
• You do the research;
• You finance your transactions.

There are certain tax strategies available, such as incorporating a business, which you may wish to consider depending on your situation.

Form T1135 for foreign cryptocurrency assets

The various requirements can be challenging to identify. For instance, taxpayers are required to file Form T1135 with CRA if they own specified foreign property that in the aggregate cost more than $100,000.

In the case of crypto assets, when these are held by third-parties in a foreign state, they may subject to that form. Failure to file results in a minimum automatic penalty of $2,500 for each annual failure to file.

Our tax experts and lawyers will help work through your obligations.