On April 16, 2024, Canada’s Deputy Prime Minister and Finance Minister, Chrystia Freeland, presented the 2024 Federal Budget in the House of Commons. This budget introduces pivotal changes for crypto traders, specifically through Canada’s new approach to crypto regulation and a significant increase in the capital gains tax, now up to two-thirds (66.67%). Let’s explore these key updates and analyze their impact on Canadian crypto traders or watch quick recap in our video.
Canada’s New Approach to Crypto Regulation
In response to the rising financial risks associated with crypto-assets, Canada is prioritizing the prevention of tax evasion within the rapidly growing crypto market. To achieve this, regulatory measures and international cooperation are at the forefront of Canada’s budget for 2024.
“Just as crypto-assets pose financial risks to middle-class Canadians, the rapid growth of crypto-asset markets poses significant risks of tax evasion,” said the budget.
The Organization for Economic Cooperation and Development (OECD) has developed a new framework called the Crypto-Asset Reporting Framework (CARF) to address these concerns.
Under CARF, crypto service providers, including best crypto exchanges in Canada, brokers and ATM providers that are based in Canada or operate in Canada will have to adhere to new reporting requirements.
These requirements include annual reporting of customer information along with the value of their crypto transactions to the Canada Revenue Agency (CRA).
These transactions include exchanges between crypto and fiat and exchanges between different cryptocurrencies. Additionally, any transaction for goods and services worth $50,000 USD or more will be reported.
Crypto exchanges will also report customer information annually including names, addresses, dates of birth, residence jurisdiction(s), and taxpayer identification numbers for each jurisdiction.
It’s worth noting that CARF focuses on traditional crypto-assets and does not cover central bank digital currencies or stablecoins, which fall under the OECD’s Common Reporting Standard (CRS).
Canada is committed to implementing CARF by 2026, with changes set to take effect in 2027. To support this initiative, Budget 2024 allocates $51.6 million over five years to the CRA, followed by $7.3 million annually thereafter.
CARF isn’t just a local effort – it’s part of a global movement. Forty-seven countries have pledged to integrate CARF into their domestic laws by 2027, demonstrating a worldwide effort to address tax evasion in the digital age.
Overall, Canada’s adoption of CARF represents a significant step towards ensuring tax compliance and transparency in the ever-evolving world of cryptocurrency.
What Do The Changes Mean For Canadian Crypto Traders?
Currently, only transactions that exceed $10,000 are reported to the CRA but these new changes will take effect in 2027. Crypto exchanges, brokers, merchants, and ATM providers will need to adhere to the new reporting standards to stay compliant.
It means that crypto traders can no longer hide any crypto transactions from the tax man because crypto exchanges will report them all to the CRA.
Every year, they will report identifying information about their customers. This information will include your name, date of birth, address, jurisdiction and Social Insurance Numbers (SIN). Along with this information, the exchanges will report the total value of your crypto transactions to the CRA. These transactions include crypto-to-crypto and fiat to crypto transactions, plus, any purchase you make for goods or services using crypto will be reported to the CRA by merchants if the value of the transaction exceeds $50,000 USD.
The changes are also applicable to any crypto transactions you make in registered accounts such as your RRSP. Crypto transactions within a TFSA remain tax-free.
It means that if you do not report all of your taxable crypto transactions on your taxes, the CRA will know and you could face fines or be prosecuted for tax evasion.
You can read more on our ultimate crypto taxation guide for Canadians.
Capital Gains Tax Increase Up to Two-Thirds
In Canada’s budget for 2024 there have been some changes made to capital gains tax.
Currently, only 50 percent of capital gains are subject to taxation. For instance, if someone sold an investment property for $100,000 more than its purchase price, they would be taxed on only $50,000 of the profit. However, the 2024 budget proposes to increase the “inclusion rate” from one-half to two-thirds on capital gains exceeding $250,000 for individuals.
Under this proposal, individuals would continue to pay tax on 50 percent of capital gains up to $250,000. Beyond that threshold, two-thirds of the gains would be taxable. Similarly, corporations and trusts would be taxed at the two-thirds rate on all capital gains.
These tax changes, if enacted, would come into effect on June 25.
However, most Canadians will not be affected by this change. Federal government data indicates that the majority of Canadians, around 28.5 million, do not anticipate any capital gains income. Furthermore, approximately three million Canadians are projected to earn capital gains below the $250,000 annual threshold. Only a small fraction, approximately 0.13 percent of Canadians with an average income of $1.4 million per year, would see an increase in personal income tax due to these changes.
How Does The Change Affect Crypto Traders?
Regarding cryptocurrency, it is treated no differently than other capital gains. For any crypto profits you make up to $250,000 in a year, half of those profits (50%) will continue to be taxed at your normal income tax rate.
For example, if you bought bitcoin at $10,000 and sold it for $100,000, your profit is $90,000. 50% of that $90,000 profit is taxable, meaning $45,000 will be taxable at your normal rate.
If you bought bitcoin at $10,000 but sold it for $500,000, your profit is $490,000. With the new changes, 50% of the first $250,000 is taxable and 66.67% of the remaining $240,000 is taxable. Therefore, you will pay tax on $125,000 and $160,000 for a total of $285,000. Therefore, from your $490,000 profit, $235,000 of that is taxable at your normal income tax rate.
This new rate will take effect for any realized capital gains on or after June 25, 2024.
Crypto capital gains within a Registered Retirement Savings Plan (RRSP) and Tax-Free Savings Account (TFSA) will remain tax-free.
