Introduction
With the continued rise of cryptocurrency use in Canada, including trading, mining, and staking activities, taxpayers must remain aware of their obligations to report crypto-asset income to the Canada Revenue Agency (CRA). Tax rules surrounding crypto-assets are evolving, and for those carrying on a crypto-asset business, proper reporting and record-keeping are critical.
While the 2024 tax filing deadlines have passed, this article will focus on preparing for the 2025 tax year and how to handle missed filings through the CRA’s Voluntary Disclosures Program (VDP).
Carrying on a Crypto-Asset Business in Canada
The CRA defines carrying on a business involving crypto-assets as regular and frequent trading, mining, or staking activities intended for profit. If you are engaged in such activities, you are required to report the income as business income, which means 100% of the profits are taxable. Even one-time transactions can be classified as business income if they are part of an “adventure or concern in the nature of trade”.
The CRA distinguishes between capital gains and business income:
- Business Income: All profits are taxable.
- Capital Gains: Only 50% of the profit is taxable, and this applies to less frequent or casual trading.
2025 Filing Preparation for Crypto-Asset Business Income
For individuals carrying on crypto-asset business activities, preparing for the 2025 tax year means staying ahead of your tax obligations. The filing deadlines for the 2024 tax year are:
- April 30, 2025: Deadline to pay any taxes owed.
- June 15, 2025: Deadline for self-employed individuals and those carrying on a business to file their tax returns.
These upcoming deadlines should guide how you track your crypto-asset activities and ensure you file on time.
Handling Missed Deadlines: The Voluntary Disclosures Program (VDP)
If you missed the 2024 tax filing deadlines, you still have the opportunity to correct your tax affairs. The CRA’s Voluntary Disclosures Program (VDP) allows taxpayers to come forward and correct unreported income or errors from previous years. By doing so, you can avoid or reduce penalties and interest.
To qualify for the VDP:
- Disclosure Must Be Voluntary: The CRA must not have already contacted you about your crypto-asset income.
- Disclosure Must Be Complete: All previously unreported income must be included.
The VDP provides relief from penalties, though taxpayers will still need to pay any taxes owed, along with interest
Crypto-Asset Reporting Under CARF
The new Crypto-Asset Reporting Framework (CARF) is expected to come into effect in 2027, which will require crypto exchanges and service providers to report transactions to the CRA. While this reporting doesn’t start until 2027, taxpayers should begin maintaining detailed records now to ensure compliance.
This framework will require reporting of:
- Crypto exchanges between different assets.
- Sales of crypto-assets for fiat currency.
- Purchases of goods and services using crypto exceeding $50,000.
How to Report Your Crypto-Asset Business Income
For 2025, crypto-asset business income must be reported using Form T2125, the CRA’s form for business income reporting. If your crypto activities include trading, mining, staking, or accepting crypto as payment for goods or services, ensure you report the fair market value (FMV) of the crypto at the time of the transaction.
Keeping Detailed Records of Crypto-Asset Transactions
Accurate record-keeping is critical for preparing your 2025 tax return. The CRA expects taxpayers to maintain detailed records of each crypto-asset transaction, including:
- Date and Time of Each Transaction.
- Type of Crypto-Asset.
- Value in Canadian Dollars at the time of each transaction.
- Descriptions of the Transaction and the other party’s crypto wallet information.
- Starting and Ending Balances for each crypto wallet.
Regularly downloading and updating transaction data from exchanges is essential for staying compliant.
Correctly Valuing Crypto-Asset Inventory
For taxpayers who hold crypto-assets as business inventory, the CRA allows two valuation methods:
- Cost Method: Valuing each asset based on its acquisition cost.
- Fair Market Value (FMV) Method: Valuing the entire inventory at FMV at the end of the tax year, using whichever value is lower.
Maintaining consistency in your valuation method is important to avoid discrepancies in your tax filings.
Conclusion
The CRA’s focus on crypto-asset reporting is growing, and Canadian taxpayers must be vigilant in preparing their 2025 tax filings. By understanding the difference between business income and capital gains, keeping thorough records, and being aware of the upcoming Crypto-Asset Reporting Framework (CARF), you can stay compliant and avoid penalties.
For those who missed previous deadlines, the Voluntary Disclosures Program (VDP) offers a way to correct unreported income and avoid significant penalties.
Staying proactive with your crypto-asset reporting will ensure that you meet the CRA’s expectations for the upcoming tax year.
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.
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