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CRA and taxation of crypto profits: business income and how to calculate gains

So I've come to the sad conclusion today that due to the high frequency of my trades, short time I hold on to most things I buy, and so on, that CRA will likely consider my crypto profits to be business income (therefore I'll pay twice as much tax as I would if it were capital gains :s )

Source: http://barretttaxlaw.com/cryptocurrency-profits-in-canada-capital-gains-vs-business-income/

"The factors which lend to a classification of gains as business in nature vs a capital gain income include:

1. Increased frequency of trading
2. Larger number of trades
3. Shorter holding periods
4. Quitting one’s other job or Increasing proportion of income attributed to crypto trading"



Factors 1-3 all apply to me... and if all goes according to plan in 2018, factor 4 (increasing proportion of income from crypto), I'll meet all 4 criteria in 2018.

The ONLY potential good thing about this is the following tidbit regarding paperwork to track it all...

"So instead of tracking each trade, an equally acceptable methodology to track business income over the course of the year is to determine the valuation in fiat (CDN) at the end of the year and subtract the value from January 1, accounting for exchanges to fiat."

This would be ridiculously simple in terms of figuring out what I owe in taxes.

I'm still bitter to have to pay twice as much tax compared to what I'd pay if it counted as capital gains, but I want to stay legal sooooo, it is what it is. Has anyone else come across this method of figuring out what one owes? Thoughts?

Comments

  • ArcheeeArcheee Member
    Last November when 10 BCHs equalled 1BTC I sold all my BCHs & bought BTCs with
    the proceeds. I now have to pay a massive Capital Gains tax and am forced to sell off
    BTCS as all my funds are in BTCs. Would I have been better to go the business route?
  • edited April 27
    I think most people will pay far less tax if claiming crypto profits as capital gains, not business income. The question is, do your profits qualify as capital gains, or would CRA think they're business income... From what I can tell, all anyone can do is consider each of those 4 factors in my original post and decide how to file based on what you think a CRA auditor would decide if looking at your case... so how long did you hold your BCH's? How much of your income from last year came from trading crypto vs. your day job? How many trades a day or week do you make? etc. Consider all those and claim accordingly.

    I'd also weigh the possible consequences of filing wrong if it turns out that you're in a grey area that's not obviously capital gain or business income. For example, if you had 200k of gains, decide to claim as capital gains, and you later get audited and CRA demands penalties and interest because they think you should have paid twice as much tax (i.e. filed as business income), can you afford to do that? (i.e. the penalties/interest could add up to a LOT if the profits in dispute are 200k) No-one knows the likelihood of that happening mind you, so what you decide will depend on your confidence in how you chose to file and your ability to afford the worst case scenario of being audited at a later date and having them rule against you. On the flip side, if your gain was small, say $200, then even if they DID audit you and say you filed wrong, the penalties/interest will likely be small so probably not the end of the world.

    re: "I now have to pay a massive Capital Gains tax and am forced to sell off
    BTCS as all my funds are in BTCs"

    I'll likely be in a similar situation by the end of this year... if things go well, I'll have to be careful to cash out enough crypto into fiat at the end of the year, to set aside for paying capital gains... I hate to cash out any of it since I'd rather reinvest it... but I don't want to end up like that guy in the reddit post that went viral (https://www.reddit.com/r/personalfinance/comments/84huks/i_just_discovered_that_i_owe_the_irs_50k_that_i/)... he's in the U.S., but what happened to him could happen to any of us if we don't set aside enough profits for taxes before reinvesting.

    Anyhow, good luck in deciding what to do!!

  • Crypto_TimCrypto_Tim Member
    edited May 14
    Hi guys...

    Any idea/thoughts about how should cloud mining earnings are reported/taxed?

    This differs from normal mining, as I have not paid for ASICs/GPUs and of course don't pay electricity costs etc..

    I purchased a "Cloud" mining contract in 2017... Then started to receive earnings every month.

    Until now I did not cover the initial cost of the contract (comparing fiat to fiat).

    So lets say I signed up for $1,000 ... all the periodic BTC payments received, did not yet cover the initial $ fee I paid.

    I have to add, I did not actually sell the received bitcoins... but I kept track of how much I received, and what was the Dollar value of that payment on that date/day.

    Thanks a lot for your opinions regarding this,
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