To sign up for our daily email newsletter, CLICK HERE
If you’ve had a profitable year with crypto investments, the Canada Revenue Agency wants to know about it so they may grab a piece of the earnings. Unfortunately, depending on buy Canada bitcoin cryptocurrency is subject to Income Tax or Capital Gains Tax.
While there is no way to cash out your cryptocurrency without paying taxes legally, there are several strategies to lower your cryptocurrency tax cost. Here are several options for avoiding cryptocurrency taxes in Canada.
Offset losses against gains
You’ve probably had some capital losses because not every investment you made was a profit. However, to lower your overall tax payment, you can balance capital losses against capital gains in Canada. So, if you made a $500 profit from selling ETH and a $500 loss from selling BTC, the two would effectively cancel out.
You can only deduct half of your loss in Canada because you only pay tax on half of your capital gain. So, in the case above, you’d only have to pay tax on a $250 capital gain if you offset it with a $250 loss.
If you have more losses than gains, you can carry them forward to subsequent tax years forever until they are all used up. You can also roll losses back up to three tax years to offset any profits and get a refund.
Harvest your losses
You ‘ realize’ a capital loss when you sell, trade, spend or donate your cryptocurrency. However, if the price of your crypto has dropped since you bought it, you’ll have an unrealized loss before that moment.
You can use a cryptocurrency portfolio tracker to keep track of your unrealized losses and harvest them to offset your winnings. For example, if you know you’ll be hit with a hefty tax bill and your portfolio contains some duds, it’s usually better to cut your losses and harvest them.
You can even acquire these assets again later if you wait longer than 30 days to escape the superficial loss regulation in Canada.
Invest in a retirement savings plan
A Registered Retirement Savings Plan (RRSP) is a way to save for the future (RRSP).
You can claim a tax deduction for any contribution to an RRSP, lowering your tax bill. Of course, when you wish to withdraw money, you’ll have to pay taxes, but you should be in a reduced tax bracket by the time you retire.
The amount you can contribute each year is limited to either 18 per cent of your previous year’s income or the mandated maximum of $29,210 for the 2022 tax year.
Get a Bitcoin ETF
An exchange-traded fund (ETF) is a type of investment vehicle that monitors the performance and price of a financial asset, such as Bitcoin in this case.
In an ETF, you don’t own Bitcoin. Instead, you’re simply betting on the price and the profits that will follow (and losses). They’re aimed at long-term Bitcoin investors who don’t want to deal with the difficulty of actually storing and HODLing Bitcoin.
There are many Bitcoin ETFs available on the Toronto Stock Exchange, including:
- Purpose Bitcoin ETF (BTCC)
- Evolve Bitcoin ETF (EBIT)
- CI Galaxy Bitcoin ETF (BTCX)
While Bitcoin ETFs are a great idea for some – some ETFs carry high management fees, so beware!
Donate crypto to charity
There are tax benefits available for charity donations at provincial and federal levels, so select a good cause and contribute your bitcoin. The federal credit is 15% of the first $200 in donations and 29% of all subsequent gifts. The amount of the provisional tax credit is determined by where you live.
The total gifts can be up to 75 per cent of the annual net income. Any donations that are not used can be carried over for the next five tax years.
To keep in mind, to qualify for a tax deduction, you must donate to a registered charity. A complete list can be found on the Canada Revenue Agency’s website.
Be seen as an individual investor
According to the CRA, Crypto is subject to either Income Tax or Capital Gains Tax, depending on whether you’re doing business-like operations or operating as an individual investor. They make this decision on a case-by-case basis, but the signs listed below indicate you may be undertaking business-like activity:
- You invest for commercial purposes.
- You undertake investment activities in a business-like manner.
- You promote a product or service.
- You show that you intend to make a profit.
If you’re seen acting as an individual investor, you’ll only pay Capital Gains Tax on half of any profits. But if you’re seen working as a business, you’ll pay Income Tax on your entire profits.
What is the simplest way to avoid paying any tax on your cryptocurrency? HODL.
You won’t have to pay tax on your asset if you don’t sell, trade, spend or give it away. So the simplest me.
thod to avoid paying taxes is to wait for the moon.
Use a crypto tax calculator
At the very least, keeping track of your cost basis across various exchanges and wallets, any subsequent capital gains and losses, and any crypto income is time demanding. You can handle all of this by hand with a large spreadsheet or utilize crypto tax software to ensure that you don’t overpay (or underpay!) tax on your cryptocurrency.