OTTAWA: The starting point for determining the tax treatment on the sale of cryptocurrency is to determine whether the sale was on account of income or capital. Unlike what may be reported, this is an unresolved question for taxpayers. There is plenty of case law on determining whether the sale of a property occurred on income or capital; it is likely that when the courts face these questions with respect to the sale of cryptocurrencies, they will use these cases as a starting point for their analysis.
Certain factors tend to support an income treatment (such as a high volume of transactions or a short period in which the asset is held), while other factors support a capital treatment (such as purchasing the asset primarily for its inherent use or a long period in which the asset is held).
In the event that the sale is held to be on capital account, a capital gain or capital loss will result. However, in the event that the sale is held to be on account of income, net business income or a net business loss will result.Once the amount of profit (non-capital loss) or capital gain (capital) from the sale of cryptocurrency is calculated, the sale will then be included as part of a taxpayer’s taxable income. Profit and non-capital losses are fully included in a taxpayer’s taxable income, while only one-half of a taxpayer’s capital gains are included in a taxpayer’s taxable income. Conversely, capital losses can only offset other capital gains. In the event that the taxpayer does not have any capital gains in the year of the sale, the taxpayer can carry-forward their capital losses indefinitely or carry them back to the past three taxation years.
