Cryptocurrency

A Legal Guide to Crypto-currency: Business Income

Cryptocurrency is a type of currency that sells products and services online.

April 11, 2022

First thing first, crypto currencies are taxable in Canada. Therefore, anyone interested in investing in crypto currencies should be informed of the laws. After all, you don't want to let yourself down by overestimating your profits, overlooking taxes, and spending more than you have.

What Is Crypto-Currency?

It is a trading mechanism used for investment purposes conducted virtually rather than physically and protected through cryptography. Crypto currency doesn't rely on banks to monitor transactions. Instead, it is a peer-to-peer payment system that slows anybody anywhere to send and accept trades.

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“The more you dig deeper into crypto the more you will discover you know little about so many things in life. Keep learning and never stop!” ― Olawale Daniel

When Is Crypto Currency Subject To Taxation?

The majority of Canadians do not pay any taxes on their crypto currency assets, although performing any of the following can result in a tax bill:

  • Converting crypto currencies to Canadian dollars or other fiat currencies.
  • Using crypto currencies to purchase products or services.
  • Providing crypto currency as a gift.
  • Buying and selling crypto currency.
  • Exchanging or trading crypto currencies, as well as converting between them.

What is Business Income?

When you generate profit through routine transactions, that is, buying, selling, and promoting your product and services, that income will be considered business revenue.

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“If the crypto currency market overall or a digital asset is solving a problem, it’s going to drive some value.” – Brad Garlinghouse (CEO of Ripple, the company behind XRP)

Four Indicators to Consider Crypto-Currency As Business Income:

  • If you intend to benefit from the sale of your crypto-currency.
  • Marketing for a product or service.
  • The activity that is carried out for commercial reasons.
  • Activities or planning are carried out as if it were a professional matter.

Tax on Crypto Business Earnings:

Any income from the crypto business is chargeable 100% to tax. For example, you sold crypto for $200,000, and you gain $500 as a profit. Your entire $500 profit would be wholly chargeable to tax.

1. Federal Tax Bracket:

CRA has a defined tax rate on business income is 38%. After federal tax deductions, it becomes 28%. However, if you are running a small business, CRA treats you at low rates, i-e, 9% for some companies which are not receiving preferential tax treatment, a general tax of 13% applies to them.

2. Crypto Currency As A Medium Of Exchange:

If you have a crypto-currency inventory for your business, CRA requires you to evaluate it consistently every year. Therefore, CRA has defined two methods for inventory evaluation:

  • Whether you evaluate each item at its cost when required or act, its current face marketing value (FMV), whichever is low.
  • Evaluate the entire inventory at face market value (FMV) at the end of each year.

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“At their core, crypto currencies are built around the principle of a universal, inviolable ledger, one that is made fully public and is constantly being verified by these high-powered computers, each essentially acting independently of the others.” – Paul Vigna

Wrapping it up!

The Canada Revenue Agency has issued guidance on crypto currency taxes in the country, but they aren't always clear. For example, whether your crypto investment is considered business revenue or a capital gain, you'll have to pay either Capital Gains Tax or Income Tax on it. That, of course, does not make things any clearer. Don't worry; Yogi & Associates are here for you! We provide proper guidance to make things clear and to get a better understanding of the whole process. Feel free to contact us, or you can visit us in Mississauga and we will assist you throughout to make the tax process easy for you.

Rafia Khalil

Executive Journalist

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