Did you know that one of the more alluring cryptocurrency options accessible to Canadians is a “non-fungible token” called NFT? Cryptocurrencies are currently the hottest thing on the market. You could be familiar with the phrase, but you might not fully get it. We are aware of your confusion and want for clarification. To assist you grasp this better, we have done research on a useful guide on NFTs for 2022. You can rely on our accountants at Yogi & Associates to assist you with the NFT tax procedure.
A cutting-edge solution for investing in the blockchain and wider cryptocurrency industry is NFT (Non-fungible Token). At first, they can be a little confusing, but after you figure them out, they can be wonderful investment opportunities. In order to fully understand NFTs, including what they are, how collections are created, and how marketplaces operate, let’s go deep into the realm of NFTs.
1. NFT: Definition:
NFT is short for Non-Fungible Token. So non-fungible ways are distinct and unreplaceable. Each NFT is noteworthy because its value differs from those of other NFTs. Moreover, NFTs are bought and sold using cryptocurrencies. On the blockchain, NFTs are used to sell nearly any transaction that cannot be exchanged for a replica.
2. The Function of NFT:
On the blockchain, NFTs are kept. The NFT’s owner may be known to the general public. Therefore, if blockchain verifies your ownership, no one can contest it. In other words, it is an unchangeable, irreplaceable document of authenticity.
“While the traditional art market and even the internet are fraught with fraudulent duplicates, counterfeiting is impossible with NFT’s,” says Al-Hasani.
3. What Makes NFTs Valuable?
NFTs are valued because they are special. Therefore, the more distinctive your NFT is, the more useful it is. Additionally, how much people are willing to spend for them determines how well they perform.
For instance, various crypto punks wear different things, such as caps or jewellery. As a result, if just one crypto punk has red hair, that would be a unique trait that would increase its value over other crypto punks.
4. Five Steps to Buy NFTs In Canada:
- Create an account on a cryptocurrency exchange.
- Buy cryptocurrency using Canadian money. Etherium is the most popular coin in 2022 for purchasing NFTs, therefore consider doing so.
- Set up a bitcoin wallet to store your cryptocurrency.
- Send the cryptocurrency you purchased to your digital wallet.
- Select an NFT market and connect your wallet to the NFT marketplace. For instance, if you use NFT Binance, the network costs will only set you back a few dollars.
5. Is NFT Taxable In Canada?
NFT is becoming more and more popular, but is it taxed in Canada? Well, if you produce it and sell it on the market, you are engaging in trade and commerce, and in that case, you are required to report your income from the sale of NFT.
6. Two Ways In Which NFT Is Taxed:
1. Capital Gains And Investement:
You must pay capital gain tax on the higher value if you purchase an NFT, see it appreciate over time, and then decide to sell it. For instance, if you buy NFT for $100 on January 1 and sell it for $1,000 on March 1; you will have to pay capital gain tax on the $900 profit.
2. Business Income:
NFT production and sale are equivalent to production and sale of other goods. So, if you own a store where you sell electronics, the money you make from sales after deducting business expenses is considered business income, and you must pay taxes on it. For instance, if you produce your own NFT and sell it for $500, you will be required to pay tax on the profit. The expenses incurred in producing the asset that was sold may also be deducted.
Let’s Wrap it up!
NFTs appear difficult, especially to novice holders. This need not be the case, though. Yogi & Associates can thoroughly explain NFTs, making sure that you’ll have all of your questions answered. We are aware that it is somewhat intricate and difficult to understand. Don’t worry, though; our accountants will see to it that you receive proper guidance. Therefore, if you need help utilising this cutting-edge technology, don’t hesitate to get in touch with Yogi & Associates in Mississauga.