Canada Revenue Agency has issued some instructions on dealing with NFT's in terms of taxation. NFT is an innovative technology to invest in blockchain technology and the broad cryptocurrency market. They're a little confusing at first, but they can be fantastic investment opportunities once you get the hang of them. So let's take a deep dive into the world of NFTs and learn all there is to know about them, including what they are, how collections are produced, how marketplaces work, and how Canadians are getting involved.
What Exactly Is NFT?
NFT means Non-Fungible Token. Non-fungible means are unique and irreplaceable. Each NFT is notable as the value of an NFT is not the same as that of another NFT. Cryptocurrency is used to buy and sell NFT's. NFT's are used to sell almost any transactions on the blockchain; like it's cannot be traded for a duplicate.
How Does NFT Work?
NFT's are preserved on the blockchain. The owner of the NFT may be publically recognized. No one can deny your ownership of the NFT if blockchain proves it. NFT is a certificate of authenticity that cannot be manipulated or destroyed.
"While the traditional art market and even the internet are fraught with fraudulent duplicates, counterfeiting is impossible with NFT's," says Al-Hasani.
What Makes NFT's Valuable?
NFT's are valuable due to their uniqueness. The more unique your NFT is, the more it is beneficial. NFT's work depends on how much people are willing to pay for them.
For example, some crypto punks wear hats; some wear jewelry as one is always different from another. If only crypto punk has red hair, that would be a rare characteristic that would make it more valuable than other crypto punks.
Five Steps to Buy NFT's In Canada:
- Sign up for an account on a crypto exchange.
- Buy crypto with the Canadian dollar. For buying NFT, probably buy Etherium as it is the most popular cryptocurrency to buy NFT's in 2022.
- Install crypto wallet as it will keep your cryptocurrency.
- Send your crypto, whichever you bought, to your crypto wallet.
- Connect your wallet to the NFT marketplace and select an NFT market. For example, if you choose NFT Binance, the network fees are minimal as it will cost you just a few dollars.
Is NFT Taxable In Canada?
NFT is gaining popularity day by day, but the question is, are you supposed to submit tax on NFT? Well, if you are creating and selling NFT in the market, you are doing trading and business, and in that case, you are supposed to submit tax on the income you gain by selling NFT.
Two Ways In Which NFT Is Taxed:
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1. Capital Gains And Investement:
If you buy an NFT and, with time, its values increase and decide to sell it, you have to pay capital gain tax on the increased value. For example, you purchase NFT for $100 on January 1st, and on March 1st, you sell it for $1000; you will pay capital gain tax on $900 you gain.
2. Business Income:
Creating and selling NFT is the same as making and selling something else. So it is considered as business income like if you have a store where you sell electronics, you have to pay taxes on the money you make by selling your product after deducting the company's expense. For example, if you create your own NFT and sell it for $500, you will pay tax on that income you gain. You can also claim a deduction for the cost of creating the asset you sold.
Let's Wrap it up!
NFTs are gaining a lot of attention since they are a brand new and exciting digital technology. It's a bit complex and challenging to comprehend. But don't worry; we'll make sure you're adequately guided. So feel free to contact Yogi & Associates for assistance in dealing with this innovative technology.