Explosive Growth in 2017
2017 has experienced explosive growth in the cryptocurrency market and we have seen the market cap approach $1 Trillion dollars in early 2018. With price action increasing there has been a lot of gains (realized and unrealized) for investors and the tax implications are now a focus. It is how over 3 Trillion dollars Canadian in 2021.
Tax Treatment for Gains
With active trading the CRA views this as active business income and thus is taxed at a higher marginal rate than capital gains tax. In general, in order to have access to capital gains tax treatment you must have held your positions for longer than a year and the intent is more of a longer term investment rather than short term trading. The tax treatment for capital gains is preferred since only 50% of the gains are taxable and even at the highest marginal rate in Canada you are paying a net tax of roughly 25%.
Active Trading solution by using a “Crypto Corporation”
If you plan to actively trade cryptocurrencies the best strategy is to transfer your positions to a “crypto corporation”. Our tax advisors use as section 85 rollover which ensures a tax-free transfer of assets from you personally to the company. Once the positions have been transferred to the corporation any trading gains now have access to the small business deduction and a low combined tax rate of 15% up to the first $500,000. Other benefits of a crypto corporation include the opportunity for income splitting through paying dividends personally from the corporation’s profit.
If you are looking for tax advisory and planning to set up a crypto corporation for your positions either actively trading or longer term core position, please contact us at [email protected].