Myths and Facts About Tax on Cryptocurrencies WHICH YOU SHOULD KNOW !

Hi friends, My name is Amandeep Singh, and I am a
CPA at Cloudiverse CPAs. With the explosion of Bitcoin, Ether, and
whatever other cryptocurrencies in the market The cryptocurrencies have captured the attention of Canadians—even though the technology
and principles behind them aren’t always understood. Since the CRA has only taken a position on
Cryptocurrency in recent years, there may still, be a lot of confusion for taxpayers like you. There are two myths which I find pervasive
among the crypto community Myth #1 is that You do not need to pay taxes on bitcoin gains
either because tax legislation and bitcoin trade classification in Canada is not yet
settled, or because bitcoin is anonymous, and the CRA will never be able to figure out
what holdings you have or how much you made as they do not have enough staffing to track
all blockchain transactions for all taxable events within a taxable year. 2. You only need to pay taxes when you sell bitcoin
for Canadian dollars or any other government-issued fiat currency because this is the only taxable
event. Well, let me tell you that if you have been trading
in bitcoin and other cryptos over the last few years, Every single time you traded, you
were supposed to report the gain or loss on the transaction. I will answer some of the common questions
on the trading of bitcoins. Question 1 ) How to determine whether the
gain or loss on the disposal of the Cryptocurrency is either on account of income or capital. Well, If you are looking at your investments over
the last few years and now want to report them, because you have just been told that
you must report, you need to ask yourself what kind of investments you been making -are
you a trader running a business in crypto or you were just holding the crypto as an
investment . In particular, the Cryptocurrency could be
inventory or property acquired as an adventure in the nature of trade, and any future gain
or loss will be on account of income. Alternatively, the Cryptocurrency may be a
capital property, meaning that future gains or losses will be on account of capital. As no special rules have been set specifically
for cryptocurrencies , the usual considerations for property transactions will apply. There are no hard and fast rules, but the
factors that have been considered by the courts in deciding are 1)frequency of transactions – do you have
a history of extensive buying and selling of bitcoins? 2)period of ownership – are you holding
the bitcoins for a short period or long period of time, i.e. more than a year? 3) Knowledge of bitcoin markets – do you
have knowledge of or experience in the bitcoin markets? 4)Relationship to the taxpayer’s other work
– do the bitcoin transactions form a part of your ordinary business? 5)Time spent – do you spend a substantial
portion of your time studying the bitcoin markets and investigating potential purchases? 6)Financing – are your bitcoin purchases
financed by some form of debt? 7)Advertising – did you advertise or otherwise
made it known that you are willing to purchase bitcoins? Based on these factors, if trading in bitcoin
is your business -it gets treated as business income, that means 100% of your gain on transactions
is taxed. Very , Recently, Bitcoin has been falling down, and
if you do the math and you really got a loss, being a trader is beneficial as the loss gets
treated as a business loss, which can be claimed 100 %. Moreover, it can be set off against
other sources of income- for example, if you have employment income and you are a trader,
and you had a loss, you can set it off against employment income to reduce your taxes. On the other hand, if your exchange of bitcoins
gets a capital treatment, only half of the capital gains are taxed, but if you have losses,
a capital treatment means only half of the the capital loss will actually be allowed. However, please bear in mind that you need
to have capital gain somewhere else, to offset your capital losses. Otherwise, if you are not able to do that ,you will have to carry the capital
losses to the future years to be set off against future capital gains. Question 2 ) What if I sold my bitcoin to
buy another form of Cryptocurrency such as ripple? Does it even count? Yes. Cra considers the trade of cryptocurrencies
to be a barter transaction, and you will still need to report your gains when trading cryptocurrencies. You see, every trade, whether it involves
fiat currency or not, is a taxable event. For example, if you trade bitcoin for ripple,
you have to pay tax as a taxable event has occurred. Now, of course, nowadays, there are a lot
of places where you can spend bitcoin, which is a far cry from how it used to be, just
a few years ago. So, if you purchased anything using Cryptocurrency,
the CRA’s position is that you sold that Cryptocurrency for its value in Canadian dollars at the time
of the transaction. For example, spending Bitcoin, whether you’re
paying for booking a hotel on Expedia or buying a Lamborghini, is treated just like selling. Question 3 ) My computer earns bitcoin from
mining. Do I need to report that? Chances are you hear the phrase “bitcoin mining”,
and your mind begins to wander to the Western fantasy of pickaxes, dirt, and striking it
rich. As it turns out, that analogy isn’t too far
off. Far less glamorous but equally uncertain,
bitcoin mining is performed by high-powered computers that solve complex computational
math problems. The luck and work required by a network to
solve one of these problems is the equivalent of a miner striking gold in the ground. As compensation, those who join a network
to mine Cryptocurrency as a business are paid in Cryptocurrency. If you are a miner and got rewarded in bitcoins,
since cryptocurrency mining is considered a business activity, you must record the fair
market value of Bitcoin that day and mark that as an addition to your personal or business
income. However, companies and individuals who mine
Cryptocurrency may be able to write-off a a portion of incurred business expenses that will help them reduce the taxes Question 4 ) My salary gets paid in Bitcoin? Do I need to report it as employment income? While this scenario is rare, if you earned
the Bitcoins in exchange for your services, you have to report that income on your tax
returns. You can record your basis as the value of
the item that you received for it . If you own Cryptocurrency, you should know
that the CRA has owners of Cryptocurrency in its sights because it is suspected that
many cryptocurrency owners are not reporting or paying taxes on their cryptocurrency gains. If you take the risk of not reporting your
crypto gains, well you are sitting on a ticking time bomb, and you will get hammered with
CRAs penalties, interest, , and back taxes apart from hefty lawyer fees if you get criminally charged. To make sure you are not financially disadvantaging
yourself with unwelcome tax surprise later, Consult a chartered professional accountant
to find out how to report your cryptocurrency transactions on your income tax return. Thank you for watching this video, please
subscribe to my Youtube Channel to watch more videos on tax planning and cash flow management. Have a good day.

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