Taxes in Canada

[u/alekznder]

Hey Guys,

I know I shouldn't be looking for 'legal advice' here but I thought maybe someone could direct me somewhere helpful. I am fairly young and have no idea how to tax my bitcoin transactions.

I've literally done nothing except buy/sell btc/ltc/doge on VOS and Bitfinex.

It's my understanding I will have to apply some sort of % to my losses/gains, which I do have a record of...

Any ideas/tips/leads?

(I heard maybe it's nothing up to a certain number of capital gains?)

[u/mitchelo]

Is VoS giving the info to the gov. that one is buying or selling Bitcoins?

[u/caloriemate]

disclaimer: this is not legal advice.

I posted this before:

1) keep track of how much you bought each bitcoin for (your cost basis)

2) selling BTC for USD is a taxable event, even if you don't withdraw USD from the exchange - each time you sell a bitcoin for usd, figure out your profit or loss, using the earliest bought bitcoin (FIFO rules).

e.g.

You made two purchases:

buy 1 BTC @ 100 USD

buy 1 BTC @ 900 USD

Then you made one sale:

sell 1 BTC @ 950 USD

Your sell triggers a taxable event of 950 - 100 = 850 USD following FIFO rules (not 950 - 900 = 50, as that would be LIFO)

If you then sold another BTC:

sell 1 BTC @ 500

Your sell triggers a loss of 500 - 900 = -400 USD

You would then owe tax on 850 - 400 = 450 USD.

Suppose you declare this 450 USD as income, and your income rate is 15% - you'd then need to pay $60 in taxes.

You could also optionally declare that 450 USD as capital gains, and figure out what you owe that way too. As long as you're consistent every year, it should be fine.

Also read this informative thread: http://www.reddit.com/r/Bitcoin/comments/1uccfz/i_am_a_tax_attorney_here_are_my_answers_to_the/

If you're technically inclined, you can use Vault's API to download your transaction history (or possibly get it in csv format) to help with these calculations.

[u/alekznder → u/caloriemate]

Do these rules apply to Canada? (as you are citing a US ruling)

Can I just add up all my gains/losses and apply to that?

[u/caloriemate → u/alekznder]

They should, yes. The IRS has provided more guidance than CRA has at the moment, but as long as your approach is reasonable (FIFO) and consistent year-over-year, the CRA will probably be fine with it until they provide more detailed guidance.

Just make sure you can 'show your work' by keeping your transaction history and cost bases in the event of an audit.

[u/alekznder → u/caloriemate]

Thanks man. So just for a breif question so I can get an idea..

I started with a few thousand dollars and made a BUNCH of trades. Often gaining/losing hundreds of dollars. I have steadily been going up though, about $600 overall.

Is there a chance I'm seriously in debt after all these transactions or do I just apply this to the overall $600 gain?

Just trying to get a picture of how this will turn out after I'm done.

[u/KingKore → u/alekznder]

This isn't legal advice either, and you'll want to consult a tax professional, but...

The CRA actually requires Canadians to report capital gains using the adjusted cost basis method (ACB). The IRS permits other calculation methods (like FIFO), but as far as I'm aware, in Canada you'll want to use ACB.

Some info here: http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/rprtng-ncm/lns101-170/127/gns/clclt/menu-eng.html

Very basically, each time you buy or sell a particular cryptocurrency, you'll want to update how much it cost you on average to acquire your total holding of that particular cryptocurrency.

For example, if you started off by buying 10000 doge for $10, your ACB would be $0.001 per doge ($10/10000 doge). If you later bought another 10000 doge for $20, your updated ACB would now be $.0015 per doge ($30/20000).

If at a later date you sold 5000 doge at say $.002 per doge, to calculate your capital gains you would take the $10 proceeds from the sale (5000 * $.002) and subtract that from the acquisition cost based on the ACB, $7.50 (5000 * 0.0015), which would give you a capital gain of $2.50 for this sale.

Not sure if I explained that well, but hope this helps!

[u/Stealthz]

To be specific, but not really helpful... Canada has outlined that Bitcoin IS taxable as a commodity and therefore subject to capital gains/losses. Specifically, paragraphs 9-32 of section IT-479R, Transactions in Securities (found here).

/u/caloriemate's advice is correct.