If you aren't involved in digital currency trading, I'm sure you know someone who is. In fact, the popularity has increased to the point that the Canada Revenue Agency is keeping a careful eye on things.
Not only are they monitoring, but they also want their fair portion of tax income, which means failing to reveal it might be quite costly.
The most crucial thing you should know is: The CRA does not regard cryptocurrencies to be a currency at all; rather, it is viewed as a commodity similar to gold and silver.
If you bought or sold cryptocurrencies this year – whether trading, gifting, receiving, or even donating – you should be aware of the tax implications. This is especially true if you are trading cryptocurrency as if it were a commodity in order to make a quick profit since these sorts of transactions would be viewed as business earnings or losses.
Here's an illustration:
If you spent $3,000 on Bitcoin and then sold it for $15,000 two months later, you would have made a $12,000 profit. In such an instance, you'd have to file a company statement with their personal tax return as well.
If you underreport or fail to report that income, the CRA may levy a penalty of $100 or 50% of the understated taxes, whichever is larger. That, of course, is in addition to the taxes owing.
If you buy a digital currency as a long-term investment, any increase in value is considered a capital gain. Any losses, however, can only be used to offset the profits you report.
You can opt to take a chance and try to avoid inspection. But you should be aware that you may be apprehended.
According to H&R Block, the CRA won a court fight in 2021 to collect user data from the bitcoin trading site Coinsquare, which included the names and information of all current and inactive customer accounts.
Furthermore, the CRA currently organizes communications with others in some capacity in order to track the flow of digital assets.
Simply having cryptocurrencies isn't taxed; it's what you do with them that is. CRA is quickly catching up and deploying the resources required to ensure you pay your fair share of money owing.
To be honest, this is most certainly a work in progress, and just because you haven't been audited this year doesn't mean you're getting a free pass. I would make certain that my records are maintained up to date and precise, and that all paperwork is retained for six years beyond the tax year it pertains to, as this data might be sought at any point if you are audited.
If you find yourself in a situation where you have been deceitful and have evaded paying taxes, now is the time to make a voluntary disclosure.
Digital currencies, like CRA, are here to stay, thus it is best to be onside and above board, otherwise, the consequences might be severe.