Personal Finance

Tax implications of selling cryptocurrencies

  • Last Updated:
  • Jan 13th, 2018 12:26 pm
[OP]
Newbie
Nov 19, 2017
11 posts
2 upvotes

Tax implications of selling cryptocurrencies

I've made a bit of money recently trading cryptocurrencies. I'm going to be cashing out soon through quadrigaCX after converting to bitcoin.

When I file my taxes for 2018 I will report any amount I cash out as a capital gain.

What I'm worried about is that should I be audited, I have essentially no papertrail to back up where I originally acquired these coins from. And I've transferred coins through so many different cryptocurrencies and exchanges, it's basically impossible to trace their history to my original acquisition (which was some time in 2013 using cash).

Is the lack of documentation something I should be concerned about under audit? Basically the only paperwork I will have will be the withdrawl statement from quadrigaCX
13 replies
Newbie
Sep 12, 2016
4 posts
1 upvote
Lack of documentation is bad.
Especially since it seems you haven't bothered reporting any of the trades in your tax return in the year they were made as you were supposed to do under the law. If you had've reported the trades in the year they were made, only 1 trade would have been suspect (the original trade done with cash), and they probably would have been semi-accepting...

However, you're reporting all trades from 2013 to 2018 in 1 year, if you get audited, you're going to be screwed. And since you didn't bother reporting them when they were made, they will levy penalties. For all years affected.
Deal Addict
Jul 3, 2017
3187 posts
2155 upvotes
Just call it what it is, "gambling winnings".
Sr. Member
User avatar
Dec 21, 2007
549 posts
122 upvotes
Scarborough
Ressym wrote:
Jan 9th, 2018 12:33 pm
reporting any of the trades in your tax return in the year they were made as you were supposed to do under the law.
See this is the part I still don't get. I guess maybe it depends...but if I bought, say $1000 in ETH, then used that $1000 in ETH to buy $1000 in BTC, shouldn't that mean essentially zero capital gain to report? If anything, in theory there should be a capital loss, as there would be fees exchanging things...

Also, depending on the years involved, you might be talking about tens of dollars back in time, which translates to thousands of dollars now. If you are cashing out say $100,000 and report it all as a gain, doesn't that mean the government collects more tax than they should, vs saying you spent $1000 getting that $100,000 therefore the gain is only $99,000?

Personally I'm nowhere near the point of cashing out...but these questions do concern me for future. So far I've spent under $1000 on crypto, but I have bought ETH to buy other types (and exchanged it for that immediately), plus I've been mining on my gaming PC when it isn't being used. My plan keep buying little bits and hold until at least $100,000 or more (as I consider it gambling/money I don't care if I max or lose really)...but if I cashed out at that point I don't have documentation on exchanging one crypto for another, nor do I have anything regarding my mining profits. My assumption was this meant I might have to report everything as a gain and pay full tax on it (which I'm ok with), but is that not the actual case/the CRA would still complain?
I am the Stig's brother's cousin's friend's former roommate.
Newbie
Sep 12, 2016
4 posts
1 upvote
Conundrum1911 wrote:
Jan 9th, 2018 2:45 pm
See this is the part I still don't get. I guess maybe it depends...but if I bought, say $1000 in ETH, then used that $1000 in ETH to buy $1000 in BTC, shouldn't that mean essentially zero capital gain to report? If anything, in theory there should be a capital loss, as there would be fees exchanging things...
I'm not sure how the currency purchases/exchanges work exaactly...
But as an example, if you bought $1000 in ETH, and traded it for $1000 in BTC, and then had to pay additional amounts of money out of pocket for the fees, then yes, that would be a capital loss due to the fees. WHICH would shelter future gains (which is why if you're doing things this way, you want to report it), and increase the cost of the current BTC you hold for when you go to sell.

If you bought $1000 in ETH, and sold it for $990 in BTC and $10 in fees, it would be zero capital gain. But should still be reported. MAINLY due to the fact that if CRA turns around and finds out about the sale or looks at a later sale, and asks where that original amount came from, they can randomly assign a cost (which can be completely out to lunch), and make it more difficult for you to get their arbitrary assessment fixed. Also, the new cost on sale would of course, still be $1000.
Conundrum1911 wrote:
Jan 9th, 2018 2:45 pm
Also, depending on the years involved, you might be talking about tens of dollars back in time, which translates to thousands of dollars now. If you are cashing out say $100,000 and report it all as a gain, doesn't that mean the government collects more tax than they should, vs saying you spent $1000 getting that $100,000 therefore the gain is only $99,000?

Personally I'm nowhere near the point of cashing out...but these questions do concern me for future. So far I've spent under $1000 on crypto, but I have bought ETH to buy other types (and exchanged it for that immediately), plus I've been mining on my gaming PC when it isn't being used. My plan keep buying little bits and hold until at least $100,000 or more (as I consider it gambling/money I don't care if I max or lose really)...but if I cashed out at that point I don't have documentation on exchanging one crypto for another, nor do I have anything regarding my mining profits. My assumption was this meant I might have to report everything as a gain and pay full tax on it (which I'm ok with), but is that not the actual case/the CRA would still complain?
If that 100k had a cost, then that cost should be reported as such.. Because yes, you would be paying too much tax if you reported it without the corresponding cost.

Personally, I'd try to put together an excel spreadsheet of how much ETH you purchased, when & for how much, as well as any fees. Notate how many BTC it was exchanged for and when, and try to get the cost of BTC at the time.

Since you'll be mingling your purchased BTC with your mined & holding it all, its better to keep track of how much your purchased BTC cost you out of pocket, so CRA can't come along later and say "You mined all this currency, cost is 0." If they do that, you'll have a larger capital gain when you do sell, vs a probably (slightly) smaller amount.
CRA can be super finicky. But if you can show at least SOME records of your trading, they're more likely to trust that you're attempting to be open & honest (especially if you can refer a matching $100 transfer to a physical bank statement), and won't go crazy and blow everything out of the water.
Deal Addict
User avatar
Sep 4, 2005
2813 posts
580 upvotes
Toronto
Can you write off your pc as an expense if you bought it to mine?
Member
Aug 31, 2015
230 posts
51 upvotes
Scarborough, ON
Want more good news - if your holdings were worth more than $250k at any year end then you may also be in violation for not filing a T1135.
Sr. Member
User avatar
Oct 19, 2016
649 posts
198 upvotes
Toronto
What happens in the following example.

Say someone bought 1 Bitcoin for $5000.
Then Bitcoin rose to $10,000 and he used that 1 bitcoin to buy $5000 of Ether and $5000 of Ripple.
Then he cashes out his Ether and Ripple for $10,000 each... and takes withdraws all in cash for $20,000

Original Investment $5000
Profit $15000

What is the capital gains tax on ? $15,000 ?
or each individual sale is taxed separate or ??
Member
Jul 23, 2009
457 posts
282 upvotes
Brampton, ON
each transaction should be treated as per CAD value.. and then use that to determine capital gains.

and then detemine ACB like for stocks.
Sr. Member
Jul 11, 2007
985 posts
119 upvotes
How exactly does Bitcoin being considered a Barter Transaction work? Am I supposed to record every single transaction made with Bitcoin and report it? This would be extremely tedious and be a pretty big deterrent to using Bitcoin to make transactions with in the first place.

Example 1. Let's say I decided to send my friend $100 CAD worth of BTC as a gift, but I bought BTC at numerous price points where it is now worth more than what I bought it for. Is this still considered a barter transaction since I am not getting anything in return? How would I be getting taxed in this scenario if I do?

Example 2. I purchase a pair of old shoes off the BST here on RFD for $20 CAD worth of BTC, but I bought BTC at numerous price points where it is now worth more than what I bought it for. Would I need to report this transaction and pay tax for it? I wouldn't be paying GST/HST if I were using cash normally.
Deal Fanatic
Jan 27, 2006
9282 posts
3352 upvotes
Vancouver, BC
wayner9 wrote:
Jan 9th, 2018 5:12 pm
Want more good news - if your holdings were worth more than $250k at any year end then you may also be in violation for not filing a T1135.
Actually there's more good news on that one. It's really $100,000 Canadian. At $250,000 Canadian, you have to fill out the long form. And the fine for not filling it out (which started out to as a VOLUNTARY declaration) is $100 per day up to a max of $2.500 per incident.
Member
Mar 2, 2011
242 posts
32 upvotes
Toronto
I have a question. Say i bought 1 bitcoin back in 2016, did i have to report me buying 1 bitcoin in 2016 tax period? Or do i only declare that trade when i sell it and procure a capital gain?
Member
Jul 23, 2009
457 posts
282 upvotes
Brampton, ON
i also would suggest using a third party website.
i personally use https://cointracking.info/ as it interfaces with various exchanges and can help keep track of trades and taxation.
the paid accounts let you keep track of more than 200 trades per year and if you signup signup using referral, you get 10% off all paid plans.

this is helpful especially if you are trading BTC/ALTcoins and it becomes a mess to keep track of all the trades.

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