The CRA Is Coming After Crypto Profits

You have to pay taxes on cryptocurrency, but you don’t have to pay tax on Purpose Bitcoin ETF (TSX:BTCC.B) if held in a TFSA.

| More on:
New virtual money concept, Gold Bitcoins

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 CRA is getting serious about taxing crypto profits.

After a lengthy court battle, the agency won the right to demand customer data from Coinsquare, a cryptocurrency exchange. As a result, 5-10% of the exchange’s largest Canadian customers will have their account data handed over to the CRA. And they won’t be the last to have the CRA scrutinizing their accounts. With this ruling, the precedent has been established that the CRA can pull data on Canadians’ crypto transactions — not just from Coinsquare, but from all exchanges. The result will be more crypto traders having to pay up their share of taxes.

What the CRA won

As a result of the federal court ruling, the CRA won the right to

  • A list of active and inactive customer accounts;
  • A list of all cryptocurrency transfers and related data (e.g., transaction IDs); and
  • A list of all customer trading activity, including off-exchange trades.

It was a big win for the CRA. But even more significant is its implications for crypto investors. The CRA fought a long legal battle to get this data. This shows that the agency is aware of the money people are making trading crypto and is looking to tax it. It has always been the CRA’s policy to tax investments — including cryptocurrency. But until now, the agency hasn’t moved aggressively to find crypto transactions. The recent court case shows that that’s changing.

How much tax could you pay?

If you’re a crypto trader wondering how much tax you’ll have to pay on your gains, you should speak with an accountant. Ultimately, it depends on how large your gain was, how much you sold, your marginal tax rate, and other factors.

One thing is certain though: the CRA views crypto profits as capital gains. This means that any money you make trading crypto is subject to capital gains tax. Capital gains are taxed less than regular income in Canada. When you realize a gain, you pay your marginal tax rate on half of the gain. So, it’s about half of the tax you’d normally pay on the same amount of employment income. That’s pretty good news if you’re a crypto trader looking to save on taxes. But you can do much better, as I’ll show in the next section.

How to pay ZERO taxes on crypto profits

If you really want to pay as little tax as possible on crypto profits, you could consider holding crypto ETFs like Purpose Bitcoin ETF (TSX:BTCC.B) in a TFSA.

BTCC.B is a stock market traded Bitcoin alternative. You pay the fund’s managers a 1% fee every year to hold your Bitcoin for you. On a $100,000 position in the fund, you’d pay $1,000 in fees every year. That might sound steep. But the benefit of holding a crypto ETF is that you can hold it in a TFSA. A TFSA is a special tax-free account that spares your investments from taxation. If you hold BTCC.B in a TFSA, you pay no taxes on it whatsoever. That will save you far more money than you spend on the 1% annual management fee. And in the end, it’s the amount of your return you take home that really counts.

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

clock time
Tech Stocks

Now’s the Time to Load Up the TFSA With These 2 Top TSX Stocks

Here are two top TSX stocks that long-term growth investors may not want to give up on, especially at these…

Read more »

shopping online, e-commerce
Tech Stocks

Shopify (TSX:SHOP) Stock Recovers 30% From its 3-Year Lows: Should You Buy?

Shopify stock: Should you buy the dip or wait for more weakness?

Read more »

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Tech Stocks

What Market Correction? 2 High-Growth Tech Stocks That Are on the Rise

I don’t think it will be long before these two Canadian tech stocks are back to delivering market-crushing returns.

Read more »

grow dividends
Tech Stocks

Why Kinaxis (TSX:KXS) Stock Jumped 14% Last Week

Kinaxis Inc. (TSX:KXS) stock popped over the past week after adding yet another big company to its impressive stable.

Read more »

potted green plant grows up in arrow shape
Tech Stocks

TFSA Investors: Double Your Investments With These 3 Top Growth Stocks

Despite the volatility, I am bullish on these three stocks, given their solid growth potential.

Read more »

Arrow descending on a graph
Tech Stocks

2 Industries That Saw the Worst Decline Last Month

The TSX has been declining at a sharp angle since the beginning of June. And two industries (crypto and cannabis)…

Read more »

Dividend Stocks

TFSA Investors: Turn $1,000 Into $10,000 in 10 Years

10-fold growth within a decade is rare but not unheard of. You can capture this growth either by predicting a…

Read more »

Growth from coins
Tech Stocks

Got $1,000? Buy These 3 Under-$20 Growth Stocks to Earn Higher Returns

These under-$20 growth stocks can deliver solid returns in the long run.

Read more »