Bitcoin Tax: The CRA Goes Hard After Crypto

The CRA is taxing Bitcoin, but you don’t have to pay taxes on Purpose Bitcoin ETF (TSX:BTCC.B) if you hold it in a TFSA.

| More on:
edit CRA taxes

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

The Canada Revenue Agency (CRA) is getting serious about taxing Bitcoin. Just recently, it reached a disclosure deal with Coinsquare that forced the company to hand over user information to CRA agents. Prior to that, it set up a “Cryptocurrency Section” of its audit department specifically to deal with crypto investors. Broadly, these actions suggest that the CRA is getting serious about taxing cryptocurrency. In this article, I’ll explore the ramifications of that fact for investors.

Crypto gains treated like any other capital gain

If you invest in cryptocurrency, you probably know by now that you have to pay taxes on realized gains. The question is how much tax you’ll have to pay. For a long time, that was a legal grey area. Canadian tax law wasn’t created in a world where cryptocurrency existed. Only recently has the agency weighed in. And its conclusion was very favourable to investors.

Cryptocurrency is considered a digital asset in the CRA’s eyes. That means it is subject to capital gains tax, which has a much better tax treatment than income. When you realize a capital gain, only half of it is subject to taxation. That’s in contrast to employment and business income, which is 100% taxable. So, thanks to the CRA’s tax treatment of crypto gains, you will pay much less tax on such gains than you would on conventional income.

The bad news

The bad news is this: you will have to pay taxes on your crypto holdings when you sell them.

And you won’t be able to hide your holdings. Part of the reason why Coinsquare agreed to fork over data to the CRA was because it was forced to by a court. So, there is now legal precedent for crypto exchanges having to hand over customer data. Sooner or later, other major exchanges will follow suit. As the courts have said, the CRA has the legal standing to demand it.

A no-tax way to hold crypto

If you’re worried about taxes eating up your crypto gains, there’s some good news and some bad news.

The bad news is that any crypto you currently hold in a taxable environment is fully taxable. You do get the capital gains tax break, which is very generous, but there’s no way to avoid taxation on realized crypto gains.

The good news is that you can hold Bitcoin in a TFSA. That is, through a crypto ETF like Purpose Bitcoin ETF (TSX:BTCC.B). While Canadian banks still don’t offer an easy way to hold Bitcoin in a conventional account, they do allow you to put ETFs like BTCC.B in a TFSA.

BTCC.B is a crypto fund that holds 100% of its portfolio in Bitcoin. A pure play in Bitcoin, it’s almost the same as holding the coin itself. The only difference is that you pay a 1% fee on your holdings every year. When you hold, say, $50,000 worth of Bitcoin, $500 of it in a given year will go to the fund’s managers. That’s not nothing. But compared to having to pay taxes on Bitcoin? It’s very little. So, by holding BTCC.B in a TFSA, you skip all usual capital gains taxes in exchange for a 1% annual fee. That seems like a fair trade.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Button has no position in any of the stocks mentioned.

More on Tech Stocks

grow money, wealth build
Tech Stocks

TFSA Cash: Turn Your $81.5K Into $330K by 2032

These Canadian stocks have the potential to deliver average annual returns over 15% and create significant amount of wealth for…

Read more »

Male IT Specialist Holds Laptop and Discusses Work with Female Server Technician. They're Standing in Data Center, Rack Server Cabinet with Cloud Server Icon and Visualization
Tech Stocks

1 TSX Tech Stock to Buy Today and Forget for the Next 5 Years

This high-growth tech stock could multiply your invested money in the next five years if you buy it in time.

Read more »

Businessperson's Hand Putting Coin In Piggybank
Tech Stocks

TFSA Investors: Got $6,000? Here’s How You Can Power Up Your Portfolio

Are you trying to find stocks to add to your TFSA? Here’s how you can power up your portfolio!

Read more »

Hand holding smart phone with online shop concept on screen
Tech Stocks

Shopify Stock or Lightspeed Stock: Should You Buy Either?

Shopify stock (TSX:SHOP)(NYSE:SHOP) and Lightspeed stock (TSX:LSPD)(NYSE:LSPD) are both up in the last month, but should you buy?

Read more »

Tech Stocks

Got $300? 2 Simple TSX Stocks to Buy Right Now

These two TSX stocks aren’t as popular as other names, but they are smart buys right now because both are…

Read more »

shopping online, e-commerce
Tech Stocks

Better Buy: Shopify (TSX:SHOP) or Amazon (NASDAQ:AMZN)?

The e-commerce giants in Canada and the U.S. have underperformed in 2022, although critical investments for growth are ongoing in…

Read more »

Shopping and e-commerce
Tech Stocks

Shopify (TSX:SHOP): Well-Positioned for a Massive Rally

Shopify (TSX:SHOP)(NYSE:SHOP) stock is a great e-commerce growth darling that could heat up over the next 18 months.

Read more »

Young woman sat at laptop by a window
Tech Stocks

Is Pinterest Stock a Buy?

Pinterest's business may be stabilizing, but its stock probably hasn't bottomed out yet.

Read more »