When you sell your cryptocurrency for a profit there are tax consequences. The profit you made is taxable either as a capital gain or as business income. You are required to report that income or capital gain on your tax return.
How you have to report it depends on whether you held it as a long term investment, in which case it is treated as a capital gain , or whether you bought and sold it for a quick profit, in which case it is treated as business income. Capital gains are taxed at 50% and business income is taxed at 100%, so it is obviously better from a tax point of view to have your sale categorised as a capital gain.
There is no hard and fast rule as to how long you have to hold your cryptocurrency for it to be considered a capital gain as opposed to business income. Some of the factors that the Canada Revenue Agency will look at though include: 1) the frequency of your trade(s); 2) what your intention was when you purchased the currency; 3) the length of time you held it; 4) whether this was a one-off or have you made several buy and sell transactions; and 5) were you dealing in just one cryptocurrency or were you dealing in more than one.
If you do not report your income or capital gains from your cryptocurrency transactions, the CRA will eventually catch up with you and will assess you with penalties and interest on top of any tax you owe. They might even prosecute you criminally. You may be able to reduce the penalties and interest by applying for a tax amnesty through the Voluntary Disclosure Program( “VDP”) and requesting a correction to your income tax return under the VDP. The VDP program is tricky though, since they changed the rules a few years ago, and you will need a tax attorney to assist you.