Crypto Asset – I bought Bitcoin. Do I need to report it?

Even when no gain has been realized, some taxpayers may have tax obligations related to their cryptoassets, including the well-known Bitcoin.

Since 2024, Revenu Québec has required detailed reporting of cryptoassets (Form TP-21.4.39). Thus, the mere fact of holding or acquiring cryptoassets creates a reporting obligation, even if no tax is due.

In addition, disclosure requirements apply when the total cost of specified foreign property (including cryptoassets held outside Canada) exceeds 100,000 CAD at any time during the year. Failure to file these required forms may result in significant penalties.

Investors should therefore inform their tax advisor or accountant of any activities related to cryptoassets, including:

• the purchase of Bitcoin or other cryptoassets;
• the holding of cryptoassets;
• trading between cryptoassets;
• staking activities;
• mining activities;
• airdrops and rewards received.

Proper disclosure ensures tax compliance and thus helps avoid penalties resulting from an incomplete tax return.

Who is this intended for?

Tax rules regarding cryptoassets do not apply only to active investors. Any individual, corporation, trust, or partnership that has held or conducted transactions involving cryptoassets is subject to these disclosure requirements.

Tax Implications Related to Cryptoassets

Type of Income

Income from cryptoassets can take various forms, including:

• business income;
• income from property;
• compensation or consideration received for services;
• a capital gain or loss.

Tax treatment varies depending on the type of income and your circumstances. It may be advisable to seek tax advice to ensure proper tax treatment.

Exchanging Bitcoin for Ethereum: Are There Any Taxes?

Yes, generally speaking.

One of the most common misconceptions is that tax applies only when you convert your cryptoassets into Canadian dollars. However, from a tax perspective, exchanging one cryptocurrency for another generally constitutes a disposition.

A disposition may occur, in particular, when a cryptoasset is:

• sold for Canadian dollars;
• exchanged for another cryptoasset;
• used to pay for a good or service;
• given or transferred;
• sold or transferred as part of a commercial activity.

Example: You buy one Bitcoin for $40,000. A few months later, its value reaches $60,000, and you exchange it for Ethereum. Even though you didn’t receive any dollars, you disposed of Bitcoin worth $60,000, generating a gain of $20,000. This gain must be reported on your tax return.

Tax Treatment of Airdrops and Crypto Rewards

An airdrop is a free distribution of tokens carried out by a blockchain project or platform.

The fact that a token is received for free does not, by itself, determine its tax treatment.

Information regarding tokens received for free must be kept separate, as their tax treatment may differ from that of purchased cryptoassets. It is therefore prudent to document:

• the date and time of receipt;
• the quantity received;
• market value in Canadian dollars;
• the reason for the distribution;
• the requirements set by the project or platform.

Staking and mining: How are they handled?

Staking involves locking up cryptoassets in order to earn rewards, such as interest or other cryptoassets. This activity could be compared to an investment that generates periodic returns.

Mining involves using computer equipment to validate transactions and secure certain blockchain networks. In exchange, miners receive rewards in cryptocurrency.

These activities generally give rise to two separate tax events: the first upon receipt of the cryptoasset rewards, and the second when those cryptoassets are subsequently sold. That is why it is essential to keep accurate records of the value of the cryptoassets at the time of receipt and upon any subsequent disposition.

It is also recommended to consult with a tax professional to confirm the applicable tax treatment, particularly to determine the type of taxable income. For example, mining may be considered an occasional activity or a full-fledged business.

When mining is conducted as a business, certain expenses may be deductible, including:

• electricity;
• rental fees;
• computer equipment;
• the tax depreciation of eligible equipment;
• certain operating expenses.

However, these expenses are not automatically deductible. It is therefore recommended that you consult a tax professional to confirm their eligibility and ensure they are treated appropriately for tax purposes.

How do you calculate the adjusted cost basis?

The adjusted base price, or ABP, generally corresponds to the tax basis of a cryptoasset.

When multiple units of the same cryptoasset are purchased at different times, calculating the PBR can quickly become complex. It is generally necessary to apply a consistent method for calculating the average cost of identical units.

Investors should hold onto:

• purchase and sale confirmations;
• wallet addresses;
• receipts for expenses;
• the conversion rates used.

What are the tax implications when a cryptocurrency becomes worthless?

The crypto world has its share of abandoned projects, bankruptcies, and tokens that lose virtually all their value. A loss in value does not automatically result in a tax loss.

Tax treatment must be analyzed based on the specific facts of each situation. To determine whether a tax loss is possible, the following documents are relevant:

• the platform’s reports;
• evidence showing that the assets are no longer accessible;
• the evidence establishing the absence of economic value.

Should I hold cryptocurrency through my company or personally?

There is no one-size-fits-all answer. The choice depends on several factors, including:

• of the amount invested;
• the frequency of transactions;
• the investor’s intent;
• the level of risk;
• the nature of the activities;
• investment objectives;
• the shareholder’s tax situation;
• the tax implications associated with the potential withdrawal of funds from the company.

Using a corporation does not eliminate the tax consequences.

Before choosing a business structure, it would be best to consult a tax expert to ensure that the option you select is the most appropriate one.

What type of cryptoasset do I have?

The term “cryptoasset” can refer to several types of assets. The category used by a platform does not necessarily determine the tax treatment.

Conclusion

Purchasing and holding Bitcoin does not automatically mean that an amount must be reported as income. However, there are disclosure requirements. In addition, selling Bitcoin, exchanging it for another cryptocurrency, using it to make a purchase, or receiving rewards may have tax implications.

Whether you’re calculating your PBR correctly, documenting your transactions, or determining whether cryptoassets should be held personally or through a corporation, proper record-keeping remains the best way to avoid unpleasant surprises when filing your tax return.

Before using a trading platform, it is also prudent to verify its status with theAutorité des marchés financiers and the relevant Canadian registries.

Tax rules may vary depending on the specific circumstances. Professional analysis may be necessary when there are numerous transactions, large amounts involved, or when activities such as staking, mining, decentralized finance, or holdings by a corporation are involved.

An article by Loïc Gervais
forthe tax team

For further reading

• Cryptoassets | Revenu Québec
• Cryptoassets – Canada.ca
• Cryptoasset Trading Platforms | AMF