The world of finance is constantly evolving, and with the rise of cryptocurrencies like Bitcoin, new opportunities and challenges emerge. In Canada, you may have the opportunity to earn your salary in Bitcoin or other cryptocurrencies rather than Canadian dollars. However, this gives rise to questions about taxation and exactly how you will report this income. If you're considering earning your salary in Bitcoin, it's crucial to understand how it will be taxed in Canada.
In this post, we'll explore the tax implications of earning a salary in Bitcoin in Canada, the reporting requirements, and some tips to help you navigate the tax landscape.
Classification of Bitcoin Income
In Canada, the Canada Revenue Agency (CRA) treats Bitcoin and other cryptocurrencies as property, not as currency. This means that earning Bitcoin as a salary is similar to being paid in a non-traditional asset like stocks or gold.
Reporting Your Bitcoin Income
When you earn a salary in Bitcoin, you must report it on your Canadian tax return. The CRA requires you to declare any income earned in Bitcoin as part of your overall income. This includes wages, salaries, or fees received in cryptocurrency. The value of the Bitcoin should be converted to Canadian dollars at the time of the transaction.
Calculating the Value of Bitcoin Income
To determine the value of your Bitcoin income, you should use the exchange rate at the time of the transaction. This can be challenging due to Bitcoin's volatility. However, cryptocurrency record keeping software’s such as Cointracking.info make it easy to track and convert income into Canadian dollars so you know exactly how much to report without having to do manual calculations.
Capital Gains on Bitcoin
If the value of your Bitcoin increases after you receive it as income, you might be subject to capital gains tax when you sell it for fiat or exchange it for another cryptocurrency. Capital gains are calculated by subtracting the adjusted cost basis (the accumulated original value of the Bitcoin when you received it) from the sale or exchange price. Only 50% of capital gains are included in your income for tax purposes.
Deductions and Credits
As a salaried Bitcoin earner, you will still be eligible for certain non-refundable tax credits, just like traditional employees. Common tax credits include:
Basic personal amount;
Canada employment amount;
CPP tax credit;
EI tax credit;
Medical expense tax credit;
Donation tax credit;
The disability tax credit (if you have a DTC form on file with CRA);
And more!
Moreover, you will still generate RRSP contribution room for future tax years. Contributions to your RRSP will result in a deduction from your income in the amount of your contribution, lowering your overall tax bill.
Canadian employers are also required to deduct CPP, EI, and income tax from the pay of their employees. If you receive salary in Bitcoin, the same rules apply, you will receive a payment that is net of these deductions. The CPP, EI, and income tax deducted will be remitted by the employer to the CRA on your behalf in Canadian dollars.
Record Keeping
To navigate the complexities of cryptocurrency taxation, meticulous record-keeping is essential. Maintain records of all Bitcoin & cryptocurrency transactions, including but not limited to; trading records, receipts, invoices, pay stubs, and the value of Bitcoin at the time of each transaction. This documentation will help you accurately report your income and any capital gains or losses. Utilizing Cointracking.info will greatly streamline the process as manually calculating your cost basis, employment income, and investment income can be a difficult and time-consuming task.
Canadian employers are also required to issue T4 slips annually to their employees. If you have received employment income in Bitcoin your employer will be required to report your income translated into Canadian dollars on this slip. You will then use the T4 slip to report the income from employment on your tax return for the year.
However, the T4 slip will not report or track subsequent income from cryptocurrency such as through trading, mining, or staking. Therefore, it is important for you to keep track of all income and transactions, so you are aware of when taxable events have occurred. For example, if you received a salary payment in Bitcoin, and sold this Bitcoin the next week, your T4 would not capture this subsequent gain or loss generated on the sale, it would only capture the original payment of the Bitcoin as employment income. Calculations through Cointracking.info would determine the amount of the investment income or loss to report.
When reconciling your employment income in software’s such as Cointracking.info to your T4 slip, ensure you are taking into account the portion of the CPP, EI, and income tax that was remitted in Canadian dollars to the CRA directly by your employer.
Always Consult an Expert
Cryptocurrency taxation is a complex and rapidly evolving field. It's highly recommended to consult with a Chartered Professional Accountant who specializes in cryptocurrency taxation. We can provide guidance tailored to your specific situation and help you comply with all tax regulations. Moreover, we will analyze your tax situation and develop a tax plan to reduce your tax bill.
Earning a salary in Bitcoin in Canada can be an enticing prospect, but it also comes with its own set of tax responsibilities. It's important to be aware of the tax implications, including reporting your income accurately, calculating capital gains, and keeping detailed records. Seeking professional advice is a wise step to ensure you're in compliance with the ever-evolving cryptocurrency taxation landscape in Canada. By staying informed and keeping detailed records with you can make the most of your Bitcoin income while remaining in good standing with the Canada Revenue Agency. We recommend using Cointracking.info to automatically start tracking your transactions, click here to save 10% when you sign up.
Tristan Bagri, CPA
Founder & Director
Tristan@tsbcpa.ca
778-707-4699
Disclaimer: All the information provided above is for informational purposes only and should not be considered as professional investment, legal, or tax advice. You should conduct your own research or consult with a professional financial advisor when investing. You should consult with a Chartered Professional Accountant when evaluating your tax situation.