With the growing popularity of cryptocurrencies around the world, Canada is no exception. If anything, Canada has been ahead in the game compared to many other nations with respect to laying down rules for trading and using cryptocurrencies. If you are based in the United States, this post will give you an overview of how crypto works in Canada. We will explain in simple terms how Canada regulates cryptocurrency and what that regulation means for investors and traders.
Trading in Cryptocurrencies within Canada
It is legal to trade in cryptocurrencies in Canada. You can buy, sell, and trade in popular digital currencies such as Bitcoin and Ethereum, among many others. However, the government of Canada has made some regulations on where you can trade and how those trades are going to be taxed.
Interestingly, Canada has also been a pioneer in regulating crypto in some aspects. For example, it was the first North American country to introduce a Bitcoin ETF, or an exchange-traded fund that allowed traders to take advantage of the stock market to invest in Bitcoin. Nevertheless, despite such developments, the country does not consider cryptocurrencies as legal tender, no different from regular cash.
The Cryptocurrency Regulation of Canada
In Canada, cryptocurrencies are not considered to be the same as ordinary money. They are not considered legal tender, as they are in El Salvador. However, you can buy, sell, and use cryptocurrencies for online transactions. This explains the boom of crypto e-commerce sites such as crypto online casinos. For casino players who prefer using crypto, most Canadian casinos allow you to fund your account using popular digital currencies such as Bitcoin and Ethereum.
Currently, the Canadian government does not have its own digital currency. While the Treasury Department of Canada has thought about a central bank digital currency, the idea has not been seriously explored yet. It would be a digital kind of money issued by the Bank of Canada-the digital version of the Canadian dollar-and could replace paper cash someday.
Canada’s History of Crypto Regulation
Canada was one of the early birds with respect to cryptocurrency regulation. As a matter of fact, it was the first country to formulate laws that help in preventing money laundering through cryptocurrency. Since 2013, the government has turned to using provincial security laws to set regulations on crypto services. Originally, these laws were written for money service businesses but were adapted for digital currencies.
Cryptocurrencies have been subject to taxes in Canada since 2013. In 2014, there was a mention of cryptocurrencies in a law known as the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. Factually, that was the first time digital currencies were recognized by a national law. What the law implied is that it put Canadian crypto exchanges under its grip, plus any foreign exchange that may offer services to Canadians.
In 2017, the world’s first investment fund that holds only cryptocurrencies was registered by the British Columbia Securities Commission. Likewise, during this era, the Canadian Securities Administration also made it quite evident that the existing laws of securities would also envelope digital currencies.
Canada has been exploring the blockchain technology, too, a system that underpins cryptocurrencies. The Bank of Canada has been trying to do what it termed “Project Jasper.” This project explores how blockchain can be used as a medium for the digital representation of Canadian currency.
Regulation of the Cryptocurrency Exchanges in Canada
In Canada, exchanges of cryptocurrency are not viewed differently than traditional money service businesses. The exchanges are thus subject to strict conditions of verifying the identity of customers, record keeping, and reporting of suspicious transactions.
As of June 2021, it has been mandatory for all crypto exchanges in the country to register under the Financial Transactions and Reports Analysis Centre of Canada. They are also expected to abide by multiple market value and margin requirements. This regulation has been in effect since its announcement in 2020. The reason for not immediately applying the rule was to give the exchanges a span of a maximum of up to a year to meet all these demands.
Canadian Crypto Tax Laws
For taxes, cryptocurrency is a commodity in Canada, which means all the money you make from buying and selling crypto is considered either business income or a capital gain. Conversely, if you lose money on the trade of cryptocurrencies, you may be able to deduct that loss against your income on your taxes.
Whether your crypto trading is business income is based upon how you conduct your activities. The CRA may consider you to be earning business income if you are trading high volumes of crypto, utilizing marketing initiatives, or attempting to derive a profit. In cases where your crypto trading resembles more of a hobby, you could take it as a capital gain.
Mining or staking cryptocurrencies is also subject to taxation in a similar way. Again, whether they fall under a business or personal income depends on how the CRA classifies such activities. If you’re not sure, it is recommended that you consult an accountant or crypto tax software.
Bitcoin ETFs in Canada
Canada became the first country in North America to approve a Bitcoin ETF. An ETF is, in essence, a financial instrument that enables one to invest in an asset without holding it outright. In this case, a Bitcoin ETF allows you to invest in Bitcoin without needing to store the cryptocurrency.
The main advantage of a Bitcoin ETF is the fact that you can invest in Bitcoin through regular investment accounts, including even tax-sheltered accounts like retirement savings plans. It has become much easier for people to invest in cryptocurrency without having to deal with the technical details of storing and securing it.
