Unfiled Cryptocurrency Taxes & Reporting Crypto Taxes

Cryptocurrency is a digital asset. For taxation purposes, the CRA treats digital assets as commodities. All income from cryptocurrency transactions must be reported on your taxes and will be treated as either business income or capital gains (or losses). If you do not report cryptocurrency on taxes, you can wind up owing back taxes and facing harsh penalties from the CRA.

When you lose money in a cryptocurrency transaction, you may be able to claim crypto on your taxes as a capital loss. Capital losses can be used to offset capital gains earned from other transactions. If you have to claim crypto on your taxes as business income, it can also be reported as a business loss. With the right crypto tax plan, you can use reported losses to offset your tax bill.

Every time you earn income from an investment, it must be reported to the CRA and taxed accordingly, including NFTs and cryptocurrency. You must report business income or capital gains from any disposition of NFT or cryptocurrency. Disposition refers to a way of getting rid of something, i.e., giving, selling, or transferring it. This includes selling cryptocurrency or giving it as a gift, buying goods or services with cryptocurrency, converting one cryptocurrency for another, or converting it to a government-issued currency.

As a general rule, holding NFTs and cryptocurrency is not taxable. As with other assets, you only need to report crypto on taxes if you earn income from a transaction. While this includes more than just selling cryptocurrency, it usually does not mean possessing the asset. It is important to realize that a crypto to crypto exchange is considered to be a sale and any gain has to be reported. Furthermore, if you earn income in cryptocurrency, such as mining Bitcoin or accepting payment for a job in Bitcoin, this could be considered taxable income.

Although you do not have to report crypto that you possess, you have to report all the income that you gain from crypto transactions within a tax year on that year’s tax filing. The amount you earn from trading cryptocurrency can affect both your marginal tax rate and whether that income is considered a capital gain or business income.

Any income that you do not report on your taxes is unfiled. If you forgot to report crypto on taxes, you could face penalties from the CRA and owe back taxes on unreported transactions. You can go back to file unreported income, and there are ways to avoid the penalties that come with it.

False or repeated failure to report income to the CRA can come with strict penalties. False statements or omissions on your tax return can result in a penalty of 50% of the understated tax or overstated credits related to the false statement, adding to the amount you will have to pay the CRA. You can receive relief from these penalties through the Voluntary Disclosure Program.

Honest mistakes can always be corrected, even when it comes to taxes and the CRA. Many people are not aware that they need to report cryptocurrency on their taxes when they get started in crypto. If you forgot to report crypto on your taxes, the Voluntary Disclosure Program can help you avoid penalties.

Under the Income Tax Act, tax evasion is a crime that can come with steep fines or even jail time. If you filed your taxes incorrectly, did not declare income or expenses correctly, or did not file returns at all, there are proactive steps you can take to avoid the harshest penalties.

The Voluntary Disclosure Program (VDP) is a CRA policy that allows taxpayers who have to correct or make changes to tax returns that they have already filed. They can reveal information not previously provided to the CRA without facing prosecution. Crypto taxes, which are considered either business income or capital gains, are reported as part of your income taxes and are therefore eligible for the VDP.

Tax prosecution can be lodged against you if the CRA believes you have filed a false or misleading statement, failed to file your taxes at all, or because of tax evasion. If any of these tax prosecutions are lodged against you, contact your tax insurance lawyer immediately.

Proactively applying for the CRA Voluntary Disclosure Program will help you avoid criminal tax evasion charges and penalties for gross negligence. While you will still have to pay what you owe the CRA, you can avoid the harshest penalties that come from unreported income.