The weather is good and the sky is blue for cryptocurrency holders, as bitcoin crossed the symbolic US$100,000 mark for the first time earlier this week. But be careful: the use of these assets carries obligations and the tax authorities are on the lookout.
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Still driven by the Trump effect, the value of bitcoin soared by more than 8% during the night from Wednesday to Thursday after the announcement by the American president-elect that he planned to appoint Republican lawyer Paul Atkins, a close to the cryptocurrency sector, at the head of the American financial markets regulatory authority (SEC).
With this new increase, the price of the digital currency, which hovered around $69,000 (US) at the beginning of November, has swelled by 48% since the American election, reaching $103,800 (US) (145 644 Canadian dollars).
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In this context, cryptocurrency holders could be tempted to sell part of their assets in exchange for a generous return. A bitcoin bought for $16,000 in 2022 and sold this week would represent a gain of more than $85,000.
Obligation
In the eyes of the tax authorities, digital currencies are considered a disposable asset rather than income as such. Thus, gains that are made in a transaction involving cryptoassets are more often than not taxable.
“If income or capital gains resulting from transactions in cryptoassets are not declared, the persons having carried out the transactions may have to pay penalties and interest, in addition to the taxes due on this income or capital gains”, explains a spokesperson for the Canada Revenue Agency (CRA), Nina Ioussoupova.
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It has been several years since the CRA set up teams of auditors who focus specifically on cryptocurrencies, because the amounts at stake for the tax authorities are estimated at hundreds of millions of dollars.
How does it work?
Very concretely, people who make a profit by selling cryptocurrency are required to include half of this capital gain in their income for the year.
If digital currencies are used to purchase a good or service, you should not forget to calculate sales taxes, which are then calculated based on the fair market value of the cryptocurrency at the time of the exchange.
For each transaction, it is necessary to keep all records that demonstrate how the market value was calculated.
Some examples of transactions for which the value of cryptoassets must be determined for tax purposes
1. Buying, selling or exchanging cryptocurrency
2. Barter of a cryptocurrency for a good or service
3. Gifts or donations
4. Gambling
5. Reward (for example: from mining)
Generally, the IRS will accept the fair market value of a cryptoasset for tax reporting purposes.
Source: Canada Revenue Agency
