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A Beginner's Guide to Bitcoin Taxes in Canada

For Canadians investing in Bitcoin, understanding how to handle taxes is crucial. The Canada Revenue Agency (CRA) considers Bitcoin a commodity and taxes it accordingly. If you’ve sold, traded, or earned Bitcoin, you'll need to report those activities on your tax return. Here’s everything you need to know to get started.

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How Is Bitcoin Taxed in Canada?

The CRA does not treat Bitcoin like traditional currency. Instead, it’s classified as a commodity. Any transactions involving Bitcoin, such as selling, trading, or using it to purchase goods or services, can result in either capital gains/losses or income, depending on the nature of the activity.

Capital Gains from Selling Bitcoin

If you sell Bitcoin for more than you paid (in Canadian dollars), the increase in value is a capital gain. You only need to pay taxes on 50% of the gain, which gets added to your income for the year.

For example, if you bought Bitcoin for $10,000 and later sold it for $15,000, your gain is $5,000. Half of that ($2,500) is taxable and must be added to your annual income.

Income Earnings in Bitcoin

If you earn Bitcoin through mining, as payment for services, or another form of reward, the CRA views it as income. You’ll need to calculate the fair market value of the Bitcoin (in Canadian dollars) when you received it and report that amount as income.

Bartering Using Bitcoin

Using Bitcoin to pay for goods or services is considered a barter transaction. The CRA taxes the Bitcoin based on its fair market value at the time of the transaction.

Capital Gains vs. Income Tax Explained

To help you understand the differences, let's take a look at a couple of examples:

Example 1: Capital Gains

You purchase Bitcoin (BTC) for $10,000. A year later, you sell that Bitcoin for $15,000. The $5,000 profit you made ($15,000 - $10,000) is considered a capital gain. Here's how taxes work here - only 50% of your capital gain is taxable. If your taxable gain is $2,500 (50% of $5,000), that amount gets added to your total income for the year and taxed according to your income tax bracket.

Example 2: Income Tax

If you earn 0.1 Bitcoin (BTC) through mining, the CRA treats it as income. The taxable amount would be the fair market value of that BTC when you received it. The key difference lies in how the earnings occur. Selling your Bitcoin for more than you bought it results in capital gains, while earning crypto directly (like mining) is treated as income.

Reporting Bitcoin on Your Taxes

When it’s time to file your taxes, here’s how to report Bitcoin activity:

  1. Capital Gains/Losses are reported on Schedule 3 of your tax return.
  2. Income from mining or payments is included in your total income for the year.
  3. If Bitcoin activity is part of a business, use Form T2125 (Statement of Business or Professional Activities).

Accurate and complete records will make filing much simpler.

Consequences of Not Reporting Bitcoin

The CRA is actively monitoring cryptocurrency activity, including Bitcoin transactions. Cryptocurrency exchanges may share your records with the CRA, so failing to report your gains or income could lead to penalties, interest, or even audits. Staying compliant now saves you trouble later.

Bitcoin Mining in Canada

If you mine Bitcoin, your earnings are treated as income. The CRA requires you to report the fair market value of all mined Bitcoin at the time you received it. Expenses related to mining (e.g., hardware or electricity) may be deductible if mining is part of a business.

Common Taxable Events

To stay compliant with Canadian tax laws, you'll need to keep detailed records of all your Bitcoin transactions. Here’s how to report them:

Swapping Bitcoin for other cryptocurrencies

Exchanging one cryptocurrency for another (e.g., BTC to ETH) is considered a taxable event.

Paying for goods or services with Bitcoin

Using crypto to make a purchase may trigger a capital gain or loss if the value of the crypto has changed since you acquired it.

Gifting Bitcoin to friends or family

Even gifts can trigger a taxable event if the value of the crypto has changed since you acquired it.

Handling Losses

If you sell your Bitcoin for less than you paid, you can claim a capital loss. This can be used to offset capital gains, reducing your tax bill. Losses can even be carried forward to future years.

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Helpful Resources for Compliance

The CRA provides useful guidance on Bitcoin and cryptocurrency taxes. Here are some external resources to explore:

  • CRA's Cryptocurrency Guide
  • Forms T2125 and Schedule 3
  • Tax software like CoinLedger or Koinly (not CRA-affiliated but helpful for crypto investors)

By understanding your tax obligations and staying organized, you can enjoy peace of mind as you grow your Bitcoin investments.

Frequently Asked Questions About Bitcoin Taxes in Canada

How does the CRA treat Bitcoin transactions?

The CRA treats Bitcoin as a commodity. Any profits from selling, trading, or using Bitcoin are taxable as either capital gains or income, depending on the transaction.

Do I need to pay taxes if I trade Bitcoin for goods or services?

Yes. When you use Bitcoin to make purchases, the CRA treats it as a barter transaction. You will need to calculate and report any capital gains or losses based on the Bitcoin’s value at the time of the trade.

Can I claim losses on Bitcoin in Canada?

Yes. If you sell Bitcoin for less than you paid for it, you can report it as a capital loss. This loss can offset capital gains in the same year or be carried forward to reduce future tax obligations.

How do I report Bitcoin income from mining or payments?

Report the fair market value of the Bitcoin (in Canadian dollars) when you received it as part of your total income for the year. If mining or payments are tied to a business, file them under Form T2125 with applicable deductions.

Does using a Canadian Bitcoin exchange simplify my taxes?

While Canadian Bitcoin exchanges may make it easier to record transactions in CAD, it doesn’t change your tax obligations. Any profits or income earned from Bitcoin activities on a Canadian exchange are still subject to Canadian tax rules.

Do I have to keep records even for small Bitcoin transactions?

Yes. The CRA requires documentation for all Bitcoin transactions, regardless of size. Keep records of amounts, transaction dates, and values to ensure compliance.

Where can I find more information on Bitcoin taxes?

The CRA offers detailed tax guidance on cryptocurrency, including Bitcoin. Check out their cryptocurrency tax page for more details.

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