Auditing Staking Income: What Canadian Businesses Need to Know

Introduction

As cryptocurrency staking continues to gain popularity, businesses in Canada that participate in staking activities must be aware of the accounting and tax implications. The Canada Revenue Agency (CRA) requires businesses to report staking income accurately, and auditors will scrutinize the financial records related to these activities. 

This article explains the auditing considerations for Canadian businesses that engage in staking and how to ensure compliance with CRA guidelines.

What is Staking?

Staking is the process by which cryptocurrency holders lock up their coins to support the operations of a blockchain network. In return for staking, participants earn rewards, typically in the form of additional cryptocurrency.

These rewards are considered income and are subject to taxation by the CRA, making proper reporting and record-keeping crucial.

Key Considerations for Auditing Staking Income

1. Accurate Reporting of Staking Rewards:
   1. Businesses must report staking rewards as income at their fair market value in Canadian dollars at the time of receipt. Auditors will examine whether these rewards have been properly recorded in financial statements.
   2. It’s important to use reliable tools or software that track staking rewards and their corresponding market values, ensuring that businesses report the correct figures to the CRA.
      
2. Income or Capital Gains:
   1. The CRA generally treats staking rewards as income. However, the classification may depend on whether the business holds the staked cryptocurrency as an investment or for active trading. Auditors will assess how these rewards have been classified and whether businesses comply with the CRA’s rules on income reporting.

3. Taxation on Dispositions of Staked Cryptocurrency:
   1. In addition to staking rewards, businesses must track and report any capital gains or losses when they dispose of staked cryptocurrency. Auditors will review the records of transactions involving the sale or exchange of staked assets to ensure accurate tax reporting.

4. Transaction Fees and Costs:
   1. Businesses that incur transaction fees or other costs related to staking activities should maintain detailed records of these expenses. Auditors will verify whether the business has appropriately deducted these costs from its taxable income.

5. Foreign Exchange Implications:
   1. If the staked cryptocurrency is in a foreign denomination (e.g., Ethereum), businesses must convert the value to Canadian dollars. Auditors will scrutinize whether businesses have correctly converted and reported these values.

Best Practices for Ensuring Compliance

• Maintain Detailed Records: Businesses should keep comprehensive records of all staking activities, including dates, amounts, and market values of the rewards.
• Use Staking Software: Utilizing crypto accounting software tailored for staking can ensure accurate tracking and reporting.
• Seek Professional Guidance: Consulting with accountants and auditors experienced in cryptocurrency taxation can help businesses avoid costly mistakes and stay compliant with CRA requirements.

Conclusion

For Canadian businesses involved in cryptocurrency staking, proper reporting and compliance with CRA guidelines are essential. Auditors will examine the accuracy of staking income records and how these transactions are treated for tax purposes. By following best practices, businesses can ensure they are prepared for audits and minimize the risk of penalties.

If you have any questions or require further assistance, our team of accountants at Tax Partners Oshawa can help you. 

Please contact us by email at [email protected] or by phone at 905-448-2241 for a FREE initial consultation appointment. 

You may also visit our website (taxpartnersoshawa.com) to learn more about other services we offer in Canada, US and abroad.