The digital currencies have emerged as a new asset class in 2017. While they have been around for a few years, the gains in the value of digital currencies were spectacular in 2017. Also, the number of digital currencies has increased manifold. It’s not just about bitcoin. A new crypto currency is being launched almost daily. Ethereum, Litecoin, Ripple are few prominent ones.
Having said that, a lot of people made money by trading crypto currencies in 2017 and now it’s time to pay their taxes. We discuss the following situations where you will be liable to pay taxes:
Buying and Selling Cryptocurrencies
- If you bought a cryptocurrency with Canadian Dollars and sold it at a profit in Canadian Dollars, this transaction will need to be reported as capital gain
- If you complete these transactions in US dollars, all transactions need to be converted in US dollars and gain/loss will be reported on your tax return
Trading Within Cryptocurrencies
As mentioned earlier, there is a plethora of cryptocurrencies available today. But not all currencies can be bought with CAD or USD as this is how the crypto currency exchanges are set up at this time.
When one crypto currency is used to purchase another currency, barter transaction rules apply for such transactions. So, you will need to know the cost of purchase in CAD for such transactions. Let’s assume you bought 10 ethers for 1 bitcoin. The transaction will be recorded as price of 10 ethers in CAD. We will also need to know the price of 10 ethers in CAD at the time of sale to determine whether profit was made in this transaction or loss.
Purchasing with Crypto
Well, it’s a currency after all and the purpose of the currency is to exchange it for products and services. The barter transaction rules apply here as well. So, if you buy a digital coin for $10.00. Its value increases to $20.00 and then you end up buying a USB drive online by paying that one digital coin. The CAD value of the USB drive is $20.00. In this case, the purchase of USB transaction will have to be reported and a tax will be paid on the increased value of digital coin.
As described above, the transactions can be really complicated and confusing. Also, there is lack of proper reporting statements from the informal exchanges where these currencies are traded. Currency conversions also add to the complication. We at Softron have been studying the tax implications related to Crypto currencies and understand the digital currency market.
Call 905-273-4444 today and let the best handle your taxes!