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When Should Canadian Crypto Owners Look Out for Taxmann?

There is no tax requirement for only holding crypto. In short, the Income Tax Act states that any barter transaction, such as the sale of cryptocurrencies, will be taxed. A CRA may treat a disposition as business income or capital gain, depending on the specific type of transaction.

Crypto income generated as part of company operations is treated as taxable business income. Determining whether income is business income is done on a case-by-case basis.

The most common indicators and examples of business income include promoting a service or product; business activities carried out in a “feasible manner”; intended to generate a profit, whether or not it is likely to occur in the near future; and business-related behaviors, such as preparing a business plan and purchasing inventory.

While business activities are usually performed regularly, a single transaction can sometimes be considered business income. As a guide for judging individual cases, the CRA will typically look at “thriller or concern in the nature of the business”. Running a cryptocurrency exchange is a common example of a crypto business that can attract CRA scrutiny.

If the sale of a cryptocurrency does not generate business revenue and it is sold at a price higher than the price at which it was purchased, the CRA makes the taxpayer realize a capital gain. Capital gains are treated as income within the tax year of settlement, but only half of the capital gains received are subject to capital gains tax.

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