Bitcoin Tax: Is the CRA Going After Crypto Income Now?

The CRA is taking steps to track crypto investments and trading activity properly and will likely introduce a more stringent taxation framework soon.

| More on:
A depiction of the cryptocurrency Bitcoin

Image source: Getty Images.

One of the grim but crucial duties of the CRA is to track every dollar of income Canadians earn and to ensure that they are paying what’s due to the government. This can be their regular job income, business income, or even investment income, which is treated a bit differently.

The CRA has refined its taxation system over decades, but there is always something new that the authority has to deal with. And for the last few years, that something is cryptocurrencies.

The CRA and crypto income taxation

The tax system currently treats cryptocurrencies as a digital asset, and crypto transactions can be taxed one of two ways:

  • Capital gains
  • Business income

Technically, crypto investors and traders have to report every disposition of crypto assets, which includes giving them away as a gift or exchanging one crypto for another. And if the CRA decides to tax your crypto dispositions as business income, your profits are likely to be cut short quite drastically. So, investors would prefer if these dispositions are taxed as capital gains.

The problem was that the CRA had relatively limited insight and observation when it came to crypto transactions. The cryptocurrencies are not centrally regulated, and the onus of reporting crypto dispositions accurately and truthfully fell on the investors.

But the CRA has taken back control in this arena. With a court order, the CRA has forced Coinsquare, the country’s largest cryptocurrency exchange, to share the transaction history of its users — and not just from now on. The CRA is looking at the records going as far back as 2013 to ensure that people have been truthful (on their tax returns) about their crypto dispositions. Guilty individuals might be subjected to legal action.

If you are worried about the taxation intricacies of the cryptocurrencies, consider “investing” in the asset indirectly via crypto stocks and ETFs.

The Bitcoin Fund

Bitcoin Fund (TSX:QBTC.U), created and managed by 3iQ Digital Management, is hedged in both CAD and USD. While the management fee of the fund is quite high (almost on the level of mutual funds), it offers you direct exposure to the underlying asset — i.e., Bitcoin, the premier cryptocurrency. The fund, along with the crypto itself, fell quite a bit (about 52.8%) when Bitcoin fell earlier this year.

But now that it’s on its way to recovery, the fund is growing as well. It has grown over 60% since its mid-July dip. As of now, the one stock of this fund offers almost 0.00111 BTC per unit. One benefit of investing in this fund instead of Bitcoin directly is that you can capitalize on the same level of growth inside tax-sheltered accounts like the TFSA and RRSP — something you can’t do if you buy the currency directly.

A crypto mining stock

Digihost Technology (TSXV:DGHI) is a Toronto-based mining company with over 12,000 miners at its disposal, and it mined over 100 Bitcoins in the first quarter alone. Unlike other, larger miners listed in Canadian stock exchanges that operated multiple sites, this $161 million market-cap company has all its miners in a single location.

The company, however, focused on sustainable mining practices, forestalling any issues that might arise Bitcoin mining’s association with climate change. The reason you might want to invest in crypto via a miner is that it might offer you more pronounced gains when the Bitcoin next spikes. The last time the crypto peaked, the stock spiked over 680% within the month of February.

Foolish takeaway

The CRA will find a way to not just properly track and tax crypto dispositions; it might establish a clear distinction between crypto’s taxation as business income and as capital gains. That alone will have a huge impact on all Canadian crypto investors. However, you can enjoy the same gains by investing in crypto-oriented tech stocks and placing them in your TFSA.

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 Adam Othman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

More on Tech Stocks

Money growing in soil , Business success concept.
Tech Stocks

3 Growth Stocks Down More Than 50% to Buy for Outsized Gains in 2023

Beaten-down growth stocks such as Shopify provide investors the opportunity to derive exponential gains once market sentiment improves.

Read more »

Businessman holding AI cloud
Tech Stocks

ChatGPT Could Spell an “AI Revolution” for These Canadian Stocks

ChatGPT indicates a breakthrough in AI that could bolster stocks like Shopify (TSX:SHOP).

Read more »

Tech Stocks

Your Future Self Will Thank You for Buying Lightspeed Stock in 2023

Here’s why you may want to add LSPD stock to your portfolio in 2023 to hold it for the long…

Read more »

a person watches a downward arrow crash through the floor
Tech Stocks

Don’t Wait for a Market Crash: These 2 Top Stocks Are on Sale

Waiting for a market crash can take away the opportunity to buy early in the market rally while growth stocks…

Read more »

Coworkers standing near a wall
Tech Stocks

What’s Next for Magnet Forensics Stock After Hitting a 52-Week High Last Week?

While TSX tech stocks have lost around 30% last year, Magnet Forensics stock has soared 82%.

Read more »

edit Business accounting concept, Business man using calculator with computer laptop, budget and loan paper in office.
Tech Stocks

Have $500? 2 Absurdly Cheap Stocks Long-Term Investors Should Buy Right Now

Got $500 to invest? Consider buying these stocks that are too cheap to ignore.

Read more »

little girl in pilot costume playing and dreaming of flying over the sky
Tech Stocks

Got $1,000? Buy These Hot Growth Stocks Before They Take Off 

Growth stocks are best when bought at their lows or early in the rally. Now is the time to buy…

Read more »

Growing plant shoots on coins
Tech Stocks

2 Growth Stocks to Invest $100 in Right Now

Even with the market riding a bullish rebound, you don’t need a whole lot of cash to invest in growth…

Read more »