Question

Hi,

I normally do my own taxes from a standard job that gives me T4 slips but in 2019 I started investing in cryptocurrencies and I’m not exactly sure how to declare what I’ve done to the CRA. (As of January 1, 2020 I think I made more from cryptocurrency than my normal job, but I haven’t sold most of it yet and as of now my normal job made me more since crypto prices fell a lot.)

I initially bought into Bitcoin using a somewhat shady character who ended up screwing me over and leaving no paper trail, but bitcoin went up enough that I made a profit anyway.

I opened an account on Kraken and initially tried to guess the market myself and manually setup some arbitrage transactions.

I built an arbitrage bot as a hobby, and it worked fairly well until February this year, (since then another bot seems to be screwing me over.)

I got caught up in the Bitcoin/Bitcoin Cash pump and dump and a few other screw-ups throughout the year meaning I’m worse off than I would have been if I had just held my bitcoins initially, (but I’m still up.) Despite the number of transactions I’ve done, my knowledge/skill in trading is obviously lacking so I’m wondering if I qualify to count my earnings as capital gains, (or does the fact most of the trades came from a bot I made as a hobby matter?)

I also bought some Ripple for a friend and he had problems setting up his account so I happened to be holding his XRP in my account (he sent me bitcoin late December and I got him his ripple in the first week of January.)

In addition to all this I also setup my home computer to mine Etherium when I wasn’t using it.  I’m not sure how this complicates matters or if I can deduct my power bill for this?

I’ve setup all the information I can pull about my cryptocurrency transactions on a google drive share.

Can you do my taxes for me, and how much will it cost me?

I’m also wondering if I should setup a personal corporation, (either in Canada, or in a tax haven country) to reduce my tax load but I’m not sure how that would work or if I’ll make enough this year to make it worth it. (The corporation bit can wait till after tax season though.)

Thank you
XXXXX

Answer

XXXXX, thanks for the email. Looks like you certainly had an interesting experience with crypto over the last few years.

First, the tracking for Crypto in Canada can be quite complex. Not only will the straight Bitcoin sales be taxable any conversions from BTC to another coin will also be considered a taxable disposition. We’ll also need to assess any losses on other crypto transactions.

It’s possible that some of the expenses you incurred while holding your crypto assets will be deductible, however we’ll need to first review whether your “profits” are considered income or capital. In either case you’ll likely be able to deduct some of the expenses.

Incorporating a company right now likely won’t help reduce your tax position currently. We can always transfer the crypto assets into a corporation via section 85 of the Canadian income tax act (form 2057), however unless you have other reasons why want to have the crypto in a corporation I would not suggest setting up a new corp.

That being said, if you are earning business income in the future and would like to invest any excess funds, setting up a corporation would be a good option.

The cost to help with this planning will vary significantly with what is required and we’ll need to chat first to review your requirements. Let’s connect soon for a call.

Cheers

Phil Hogan
250-661-9417