The CRA treats cryptocurrency (“crypto”) as a legitimate commodity, which means you are either taxed on the capital gains or as business income. Determining this depends on a few factors and must be examined on a case-by-case basis.
Capital Gains – If you are using crypto for personal reasons, such as investment purposes, you will be taxed on the capital gains (the amount you profited from selling that crypto). As a capital gain, only 50% of your income is taxable. So, for example, if your capital gain for selling crypto is $10,000, only $5,000 will be taxable income rather than $10,000.
Business Taxation – If crypto is used to buy and sell goods through your business, your gains will be treated as business income and will be taxed as such. The CRA does not have a defined definition as to what constitutes a business. As such, the following are common indicators that you may be carrying on a business:
You carry on activities for commercial reasons; or
You carry on activities in a businesslike manner (such as preparing a business plan, acquiring capital, or obtaining investors); or
You actively promote your service and/or product
Examples of crypto business could include crypto mining or crypto exchanges, such as Coinbase or Binance. You could also be day trading cryptocurrency rather than buying and holding for longer periods of time. If you are disposing of crypto through any of these activities, or by similar means, your crypto will likely be taxed as active business income.