Profits & losses made from forex trading in Canada must be declare.
In Canada, forex currency trading is considered by the Canada Revenue Agency (CRA). As trading in the financial markets grows in popularity among private investors, the question that worries many investors is: How do I go about reporting my trading income on my tax return?
According to the Canada Revenue Agency (CRA), all profits or gains from financial transactions must be reported as business income or capital gains. The decision to report income as business income or capital gains will depend on the nature of your operations. As a general rule, those who are heavily involved in financial trading – such as day traders or high volume traders whose most of their income is generated from trading – might consider reporting their income as business income. . Those who have made a profit by buying and selling cryptocurrencies, but do so infrequently and on an ad hoc basis, may instead consider reporting their income as capital gains.
These two different forms of income are taxed in very different ways. For profits made in the form of capital gains, only 50% of these profits are really taxable. For profits made as business income, 100% of those profits are taxable. So you make a profit or a loss (business income / loss or capital gain / loss) as soon as you have the crypto you hold. The disposition is triggered either by exchanging one cryptocurrency for another or by eliminating the cryptocurrency entirely and converting it into Canadian dollars.
Whenever you buy or sell cryptocurrency, you need to keep track of it. It can be particularly difficult to remember both the fair market value and the adjusted cost base at the time it was traded – two concepts that are essential for correctly calculating the resulting profit and / or loss. Calculating these variables can be a challenge for many Canadian cryptocurrency traders, but if your trade information is stored on your trading platform, all relevant data should be readily available. The calculation process will likely be tedious and lengthy, but unfortunately it cannot be avoided. This guide from the Chartered Professional Accountants of Canada (CPA) is also useful for people looking to file as there have been reports of ARCs checking cryptocurrency investors for irregularities in their numbers. Or maybe consider getting professional advice the first time around and also check out the CPA guide.
This free ACB calculator is very useful even if you want to do it yourself. The calculator also has a how-to guide. Although if you are a high volume trader who needs to file as a business, it may make more sense to opt for the services of an accountant. Also, given the complexity of financial trading, any trader who needs to report their crypto-based income, should consider consulting an accountant. If you have any questions or concerns, be sure to check out the Canada Revenue Agency’s official guide to cryptocurrency traders.
Disclaimer: Please consult a qualified tax accountant. This article is for general information only and should in no way be taken as tax advice.
