First thing first, cryptocurrencies are taxable in Canada. Therefore, anyone interested in investing in cryptocurrencies should be informed of the laws. In Mississauga, cryptocurrencies are becoming more popular and valuable, and with that comes an increasing number of people and businesses interested in investing their money into them. This can be confusing for people who are new to the process, but Yogi & Associates have put together a step-by-step guide about what cryptocurrency is. As well as our accountants know it’s a pretty daunting task, but we will help you to get familiar with these fast-moving markets in Mississauga, Ontario – it’ll be worth it! So, don’t sweat it, as Yogi & Associates have given a 2022 easy guide to business cryptocurrency in this article. Give it a read!
1. What Is Cryptocurrency?
It is a trading mechanism used for investment purposes conducted virtually rather than physically and protected through cryptography. Cryptocurrency doesn’t rely on banks to monitor transactions. Instead, it is a peer-to-peer payment system that slows anybody anywhere to send and accept trades.
“The more you dig deeper into crypto the more you will discover you know little about so many things in life. Keep learning and never stop!” ― Olawale Daniel
2. When Is Crypto Currency Subject To Taxation?
The majority of Canadians do not pay any taxes on their crypto currency assets, although performing any of the following can result in a tax bill:
- Converting crypto currencies to Canadian dollars or other fiat currencies.
- Using crypto currencies to purchase products or services.
- Providing crypto currency as a gift.
- Buying and selling crypto currency.
- Exchanging or trading crypto currencies, as well as converting between them.
3. Cryptocurrency: Business Income
When you generate profit through routine transactions, that is, buying, selling, and promoting your product and services, that income will be considered business revenue.
4. Four Indicators to Consider Crypto-Currency As Business Income:
- If you intend to benefit from the sale of your crypto-currency.
- Marketing for a product or service.
- The activity that is carried out for commercial reasons.
- Activities or planning are carried out as if it were a professional matter.
5. Tax on Crypto Business Earnings:
Any income from the crypto business is chargeable 100% to tax. For example, you sold crypto for $200,000, and you gain $500 as a profit, your entire $500 profit would be chargeable to tax. So, following are the situations in which crypto business is taxed.
1. Federal Tax Bracket:
CRA has a defined tax rate on business income is 38%. After federal tax deductions, it becomes 28%. However, if you are running a small business, CRA treats you at low rates, i-e, 9% for some companies which are not receiving preferential tax treatment, a general tax of 13% applies to them.
Mining and Skating:
If you are engaging in cryptocurrency mining or staking activities and earning income from these activities, that income could be subject to the business tax rules. The CRA acknowledges that crypto mining or staking can be either a personal activity, i.e. a hobby, or a business activity and evaluates cases on an individual basis.
2. Cryptocurrency As A Medium Of Exchange:
If you have a cryptocurrency inventory for your business, CRA requires you to evaluate it consistently every year. Therefore, CRA has defined two methods for inventory evaluation:
- Whether you evaluate each item at its cost when required or act, its current face marketing value (FMV), whichever is low.
- Evaluate the entire inventory at face market value (FMV) at the end of each year.
“At their core, crypto currencies are built around the principle of a universal, inviolable ledger, one that is made fully public and is constantly being verified by these high-powered computers, each essentially acting independently of the others.” – Paul Vigna
If you want to learn about personal cryptocurrency, you can see our aticle by clicking 2022 Easy Guide to Personal Cryptocurrency.
Wrapping it up!
The Canada Revenue Agency has issued guidance on cryptocurrency taxes in the country, but they aren’t always clear. For example, whether your crypto investment is considered business revenue or a capital gain, you’ll have to pay either Capital Gains Tax or Income Tax on it. That, of course, does not make things any clearer. Don’t worry; Yogi & Associates are here for you! We provide proper guidance to make things clear and to get a better understanding of the whole process. Feel free to contact us, or you can visit us in Mississauga and we will assist you throughout to make the tax process easy for you.