Cryptocurrency tax losses

Cryptocurrency losses in 2018:

As bitcoin and other cryptocurrencies are down 70% or more from the all-time highs, most investors in digital assets will likely have losses in fiscal 2018.  With a lot of capital gains reported in fiscal 2017, this resulted in a large tax bill for investors that sold their positions in late 2017.  There were taxable events for two types of transactions: 

1) Digital assets sold for fiat currency, and;

2) Crypto to Crypto transactions (as per CRA guidance this is determined to be barter transactions thus a taxable event).

Taxable events for Fiscal 2018

The transactions likely in 2018 are investors that sold the top of the market in January 2018 back to fiat currency.  There will be taxes payable for capital gains realized in early 2018 and through the year as the market started to sell off.

Capital Gains vs Business Income Tax Treatment

Personal tax liability is incurred when cryptocurrency is sold and realized as fiat currency or another cryptocurrency either as a capital gain or business income. If the trading activity and volume of trades are frequent, CRA will view the gains as business income rather than capital gains. In this case, when bitcoin or any other altcoin is sold for fiat currency or another altcoin, the profit over the cost base in which it was purchased will be reported as a business income for tax purposes. If assets are purchased for long term hold, the gains would be reported as capital gains.  Business income is 100% taxable at the marginal tax rate, and capital gains are 50% taxable.

Loss carryback (2018 losses applied to 2017)

As per the CRA, “you have a capital loss when you sell, or are considered to have sold, a capital property for less than its adjusted cost base plus the outlays and expenses involved in selling the property.

Generally, if you had an allowable capital loss in a year, you have to apply it against your taxable capital gain for that year. If you still have a loss, it becomes part of the computation of your net capital loss for the year. You can use a net capital loss to reduce your taxable capital gain in any of the three preceding years or in any future year.

Unused 2017 net capital losses can be carried back to 2014, 2015, and 2016 without adjustment, but if unused net capital losses of other years are carried forward and applied to your 2017 taxable capital gains, you have to determine your adjustment factor, because the inclusion rate may have changed.”

Therefore for investor’s that realized cryptocurrency losses in 2018 can apply these losses back to the capital gains realized in 2017 accordingly.

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