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This section was produced by the editorial department. The client was not given the opportunity to put restrictions on the content or review it prior to publication. February 1, Last Updated February 1, The CRA issued a letter in that stated that Bitcoin and other digital currencies were not considered to be legal tender.

Instead, the government agency said, cryptocurrencies are viewed as a commodity. As such, any resulting gains or losses could be taxable income. But until the gains on that virtual currency are realized — whether that is by selling the bitcoin mining taxes canada currency, or using it to make a purchase —those gains are not subject to tax.

When cryptocurrencies are used to pay for goods or services, the rules for barter transactions apply. For example, if a merchant accepted Bitcoin in exchange for a desk, a pair of glasses or jewelry — all items that can currently be bought using Bitcoin — the seller will need to include the fair market value of the good or service sold in their income for tax purposes.

When making a purchase, any gains or losses on the cryptocurrency are considered realized and must be reported, said Paton. That gain, whether it is thousands of dollars or a couple of loonies, is subject to tax, said Paton.

And avid users of Bitcoin should calculate this amount for all transactions during the tax year, she added. As well, if someone used Bitcoin to purchase another cryptocurrency, such as Ethereum, he or she would be considered to have sold the Bitcoin for its value in Canadian dollars bitcoin mining taxes canada the time of the transaction, said Elgar.

If you are cryptocurrency mining — using powerful computers to process complex online cryptocurrency transactions in exchange for more cryptocurrency — that has tax implications as well. The cryptocurrency gained in this process will need to be reported as income, said Paton. However, these businesses will also be able to deduct associated bitcoin mining taxes canada such as the cost of computers and electricity.

The flurry of Canadian companies that entered the cryptocurrency mining fray last year will be subject to these guidelines. It may seem early to bitcoin mining taxes canada thinking about filing taxes, but this year's return could be particularly time-consuming for Canadians who have flocked to Bitcoin and other cryptocurrencies. Bitcoin mining taxes canada deal includes 19 natural gas processing plants and 3, kilometres of pipelines.

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Are you contemplating the acquisition of a cryptocurrency such as Bitcoin or Litecoin? The reasons for, and circumstances surrounding, such acquisitions vary widely, including "crypto-mining" activities, buying and selling for speculative investment purposes, and as a means of facilitating the purchase and sale of goods, services or other transactions.

The technology underlying digital currencies may offer the benefits of increased privacy and reduction of intermediaries and associated transaction fees normally associated with cash transactions. However, the acquisition, holding and disposition of a cryptocurrency regardless of how anonymous it may seem has Canadian tax implications. Any potential holder of a cryptocurrency must understand the applicable Canadian tax landscape, including the transactions that trigger a taxable event, and ensure that it is fully compliant with its tax reporting and paying obligations.

These cryptocurrencies can generally be bought and sold on specialized exchanges and are increasingly being accepted as payment in lieu of fiat currency in a wide variety of commercial transactions. In other words, think of cryptocurrency for income tax purposes as being the virtual equivalent of a precious metal such as gold or silver.

Typically, the first question asked regarding the taxation of cryptocurrencies is whether the acquisition of the cryptocurrency is a taxable event that potentially triggers a Canadian income tax liability to the person acquiring the cryptocurrency. The answer depends on the manner, purpose and circumstances in which the cryptocurrency is acquired. For this purpose, the mined cryptocurrency will generally be treated as inventory of the business.

Such a holder will have a myriad of tax issues that are distinct from the acquisition of cryptocurrency from non-mining activities, which are not addressed in this blog and must be reviewed on a case-by-case basis. The acquisition of cryptocurrency as a pure speculative investment, similar to physical gold or a publicly-traded security, is generally not a taxable event to the person acquiring the cryptocurrency. This is to be contrasted with the acquisition of a cryptocurrency as consideration for the provision of goods or services or as compensation for some other right of payment.

Once a cryptocurrency has been acquired, it will be important to determine its cost for Canadian tax purposes, which is a fundamental concept for determining the future income tax consequences on an eventual disposition of the cryptocurrency. Where a cryptocurrency is purchased in exchange for Canadian currency, the cost for income tax purposes of the cryptocurrency will be equal to the amount of such cash paid, plus any directly related acquisition expenses. If foreign currency is used, the holder will generally be required to convert the foreign currency into the Canadian-dollar equivalent at the applicable rate pursuant to normal tax rules.

This may not always line up exactly with the fair market value of the cryptocurrency at the time of the barter transaction. The person will be considered to have acquired crypto 1 with a tax cost equal to the fair market value of the crypto 2 given up in exchange, computed as of the time of the barter transaction.

You will realize taxable income or loss on an eventual disposition of a cryptocurrency. This is a material distinction for tax purposes. This is a factual, case-by-case determination requiring a detailed review of the nature of your dealings with the commodities in question. Again, this issue is fact-dependent and should be reviewed on a case-by-case basis. Canadian tax law restricts the type of investments can be held in deferred investment plans e. Transacting in cryptocurrencies also gives rise to unique sales tax implications that must be considered based on the facts relating to any particular transaction.

Holders and prospective holders of cryptocurrency will need to ensure that all potentially relevant Canadian tax issues are considered and to stay on top of evolving legal trends and administrative interpretations. Special thanks to articling student Rehman Mir for his assistance with preparing this article.

Written by Matthew Peters and Martin A. Sorensen Are you contemplating the acquisition of a cryptocurrency such as Bitcoin or Litecoin? Acquisition of Cryptocurrency—A Taxable Event? What is My Cost in the Cryptocurrency? Tax on Disposition of Cryptocurrency You will realize taxable income or loss on an eventual disposition of a cryptocurrency.