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Cryptocurrencies such as Bitcoin are digital assets which use cryptographic techniques to verify the transfer of assets and control the creation of additional units of the crypto currency. Hereu2019s how you can choose to calculate Cryptocurrency Canadian Tax.
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Cryptocurrencies such as Bitcoin are digital assets which use cryptographic techniques to verify the transfer of assets and control the creation of additional units of the crypto currency. Here’s how you can choose to calculate Cryptocurrency Canadian Tax.
The key feature of a cryptocurrency is that the ledger that records transactions, known as a blockchain, is not controlled by a central authority.
Instead, each cryptocurrency implements a system where transactions on the blockchain are validated by a large number of independent parties. These independent parties who do the work of verifying transactions are known as cryptocurrency miners. These systems are set up so that cryptocurrency miners are rewarded for mining with newly created units of the cryptocurrency such as Ethereum. As the popularity and valuation of cryptocurrencies, such as Ripple, rises, it becomes more important to understand the Canadian income tax consequences of cryptocurrency mining.
Tax treatment of cryptocurrency mining:The two main possible characterizations for the activity are as a personal hobby or as a business. The courts have determined that in order for an activity to be a business, the taxpayer’s predominant intention in carrying out the activity was to make a profit and that the activity was carried out in accordance with the objective standards of businesslike behaviour.
Therefore if the personal elements, if any, in the activity outweigh the extent to which the taxpayer carried out the activity in a commercial manner, then the activity is a hobby not a business. There is no fixed list of objective factors that courts look to as indications that the activity is being carried out in an objectively businesslike manner.As these factors will vary between individual miners, whether their mining was a hobby or a business will depend on the facts and circumstances of the individual miners.
Cryptocurrency Mining – Income Tax Consequences of Mining as a BusinessIf your mining activity constitutes a business, it will have several different tax consequences. When a miner receives a new unit of a cryptocurrency such as Bitcoin through their mining activity, the miner will not have an income inclusion until the miner disposes of that Litecoin. The new Litecoin will be considered part of the inventory of the business and be subject to the inventory valuation rules of the Canadian Income Tax Act.
When the miner eventually disposes of the Litecoin and other cryptocurrency they have mined they will most likely earn business income or incur business loses as opposed to capital gains or losses. This is important as only 50% of a capital gain is included in a taxpayer’s taxable income, which can significantly reduce the amount of tax owing if the taxpayer has large gains.
Cryptocurrency Mining and Tax Tips1. The question of whether an individual’s mining activities is business or a hobby is both complicated and important. It is complicated because it requires knowledge of the Canadian tax case law covering this question and because it is very dependent on the specific circumstances of the individual miner.
2. Under ordinary circumstances, it is unlikely that a hobby could produce large gains, but the sharp increase in value in Bitcoin and some other cryptocurrencies over the last few years has resulted in significant unanticipated gains for hobbyists.3. In some circumstances it may be possible for commercial miners to segregate some of the coins they have mined into a long term portfolio and credibly claim that those coins underwent a change in use from inventory to capital property. This would mean that gains from disposing of these coins would be capital gains not business income and considerable tax savings.
4. Commercial miners who are not holding on to their coins for the long term should consider incorporating to gain access to lower rates on active business income through the small business deduction.Here’show to buy bitcoin in Canada with the help of Netcoins! Sign up now for free!SOURCE CREDIT: https://vancouvercryptoexchange.tumblr.com/post/670158159550251008/bitcoin-mining-and-cryptocurrency-canadian-tax
