Learn About Cryptocurrency Taxes
The number of cryptocurrency users in Toronto are increasing rapidly. The question is: are all cryptocurrency investors and sellers paying their taxes? Using digital currency does not exempt traders from reporting their transaction profits or paying taxes, no matter where the trading platform is. Canadians are required to report their worldwide income.
If you are not familiar with the term, cryptocurrency is designed for transactions in the digital world. It is a virtual form of payment with limited entries in the database. Bitcoin is one such example. Other digital currencies are Litecoin, Ripple, Ethereum but they are not accepted as widely. Apple has authorized about 10 different cryptocurrencies as an accepted mode of payment on the App Store.
History of Cryptocurrency
In the early 90s, digital currency was born with the tech boom but it didn’t make much of a mark. Cases of fraud, friction between cryptocurrency companies and employees were rampant. In 2009, Bitcoin was introduced as an electronic cash system which was not in the hands of third party companies. Instead, it was centralized with no servers involved to steal information from, and no individual controlling body.
The process works like file sharing within a company. Through Blockchain, all transactions and account balance are visible to everyone in the network. Transactions are files carrying the sender’s and recipient’s public keys (wallet addresses) and the amount of coins transferred.
In a cryptocurrency network, the transactions are confirmed legitimate by miners who solve a cryptographic puzzle for which he receives a reward and transaction fee. The blockchain requires the consensus of all participants (in cryptography form) to approve the transaction and balance. If the network nodes disagree on any balance, the system breaks.
Cryptocurrency Use and Taxes
● Buy Products: Cryptocurrency is increasingly used to purchase products and services online and offline. Retailers can range from local shops and restaurants to hotels, flights, apps or anything else. There are gift cards that accept cryptocurrencies and shopping sites like Bitify and OpenBazaar that accept only cryptocurrencies. In 2017, many made investments in the currency such as Bitcoin and Ethereum and earned considerable profits.
● Taxes on Profits: However, with selling products and making profits also come taxes. But few people know how to file taxes on their cryptocurrency gains. Others hide their digital gains from the Canada Revenue Agency (CRA). The CRA warns that taxes must be paid by April 30 filing deadline.
● You must keep a record of all cryptocurrency transactions. If you make profits while selling or exchanging cryptocurrency, you have to report it to the CRA, where the platform was local or international.
● This usually means reporting on your personal return. You have to claim it as capital gain, 50% of which is taxable.
● Cryptocurrencies cannot be stashed away in a tax-free savings account or RRSP because they don’t fall under eligible investments under the Canada Income Tax Act. You need to keep records and report your income and expenses properly.
Trust S&W CPAS LLP for Working Out Your Cryptocurrency Taxes
Tax authorities are aware of the gains in cryptocurrency transactions. The penalties for not claiming income on them are severe, and adds up with the years. It is not a risk you would want to contemplate. Know the rules of the game before you get into it.
If it sounds way too complicated or challenging, consult our experienced and reputed chartered accountants at S&W CPAS LLP for information and guidance. The world of cryptocurrency is rapidly evolving. We can keep detailed records of your cryptocurrency investments, show you ways to minimize your taxes and help you file them on time. Call us for professional assistance.