Explosive Growth in
2017
2017 has experienced explosive growth in the cryptocurrency
market and we have seen the market cap approach $1 Trillion dollars in early
2018. With price action increasing there
has been a lot of gains (realized and unrealized) for investors and the tax
implications are now a focus.
Tax Treatment for
Gains
With active trading the CRA views this as active business
income and thus is taxed at a higher marginal rate than capital gains tax. In general, in order to have access to
capital gains tax treatment you must have held your positions for longer than a
year and the intent is more of a longer term investment rather than short term
trading. The tax treatment for capital
gains is preferred since only 50% of the gains are taxable and even at the
highest marginal rate in Canada you are paying a net tax of roughly 25%.
Active Trading solution
by using a “Crypto Corporation”
If you plan to actively trade cryptocurrencies the best
strategy is to transfer your positions to a “crypto corporation”. Our advisors
use as section 85 rollover which ensures a tax free transfer of assets from you
personally to the company. Once the positions
have been transferred to the corporation any trading gains now have access to
the small business deduction and a low combined tax rate of 15% up to the first
$500,000. Other benefits of a crypto
corporation include the opportunity for income splitting through paying
dividends personally from the corporation’s profit .
If you are looking for tax advisory and planning to set up a
crypto corporation for your positions either actively trading or longer term
core positions please contact an MP Group advisor.