Is CRA Now Tackling Crypto Revenues?

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Written by Adam Othman at The Motley Fool Canada

One of the grim but crucial jobs of the CRA is to track every dollar of income Canadians earn and make sure they pay what is owed to the government. It could be their regular employment income, business income, or even investment income, which is treated a little differently.

The CRA has refined its tax system over the decades, but there is always something new that the authority must contend with. And in recent years, that something has been cryptocurrencies.

The CRA and crypto-taxation of income

The tax system currently treats cryptocurrencies as a digital asset, and crypto transactions can be taxed in one of two ways:

Capital gains

Business income

Technically, crypto investors and traders should report every disposition of crypto assets, which includes giving them away as a gift or exchanging one crypto for another. And if the CRA decides to tax your crypto provisions as business income, your profits are likely to be drastically reduced. Thus, investors would prefer these provisions to be taxed as capital gains.

The problem was that the CRA had relatively limited knowledge and observation regarding crypto transactions. Cryptocurrencies are not centrally regulated, and the responsibility for reporting crypto provisions accurately and truthfully rests with investors.

But the CRA has regained control in this area. With a court order, the CRA forced Coinsquare, the country’s largest cryptocurrency exchange, to share its users’ transaction history and not just from now on. The CRA is looking at records going back as far as 2013 to make sure people have been truthful (on their tax returns) about their crypto provisions. Those guilty could be subject to legal action.

If you’re worried about the tax complexities of cryptocurrencies, consider investing in the asset indirectly through crypto stocks and ETFs.

The Bitcoin fund

Bitcoin Fund (TSX: QBTC.U), created and managed by 3iQ Digital Management, is hedged in both CAD and USD. Although the fund’s management fees are quite high (almost at mutual fund level), they give you direct exposure to the underlying asset, namely Bitcoin, the first cryptocurrency. The fund, as well as the crypto itself, fell significantly (around 52.8%) when Bitcoin fell earlier this year.

The story continues

But now that it is on the road to recovery, the fund is also growing. It has risen by more than 60% since its low in mid-July. Right now, the only stock in this fund is offering almost 0.00111 BTC per unit. One of the advantages of investing directly in this fund instead of Bitcoin is that you can capitalize on the same level of growth in tax-sheltered accounts like TFSAs and RRSPs, which you cannot. not do if you buy the currency directly.

A crypto-mining stock

Digihost Technology (TSXV: DGHI) is a Toronto-based mining company with over 12,000 miners at its disposal, and it mined over 100 Bitcoins in the first quarter alone. Unlike other larger miners listed on Canadian stock exchanges that operated multiple sites, this $ 161 million market-capitalization company has all of its miners in one place.

The company, however, has focused on sustainable mining practices, avoiding any issues that may arise in connection with climate change. The reason you might want to invest in crypto through a miner is that it might offer you more pronounced gains in the next few peaks in Bitcoin. The last time crypto peaked, the stock climbed over 680% during the month of February.

Stupid takeaways

The CRA will find a way not only to properly track and tax crypto provisions; it could make a clear distinction between taxing cryptos as business income and as capital gains. This alone will have a huge impact on all Canadian crypto investors. However, you can enjoy the same gains by investing in crypto-focused tech stocks and placing them in your TFSA.

Bitcoin Tax Post: Is CRA Going After Crypto Income Now? first appeared on The Motley Fool Canada.

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Foolish contributor Adam Othman has no position on any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

2021

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