Doing your taxes is hard enough. But if you dabbled in crypto or NFTs in 2021, it could make your taxes even more complicated. Here’s what you need to know about how cryptocurrency and NFTs will affect your taxes.
Latest news: it is important to do your taxes. This is how you keep the government off your back, and as a student it might even earn you a decent return. But depending on how you’ve spent the last year interacting with trendy investments like crypto and NFTs, relying on a tax expert might be more important than ever.
The tax deadline is May 2, 2022. Are you ready?
Before going any further, be sure to take the Life & Tax Quiz from H&R Block to see what you can be sure of when it comes to your tax return (and get a chance to win $2,500).
What is an NFT?
NFT stands for non-fungible token. It is a digital asset traded with blockchain technology and can be anything from a GIF to an image to a song to a tweet. One of the defining characteristics of an NFT is that ownership can be tracked, which means creators will continue to profit beyond the initial sale of their art.
How do NFTs affect your taxes?
The law in Canada is pretty clear here. If you only bought NFTs, you have nothing to worry about. But if you sold NFTs last year, you will have to pay taxes on them. Specifically, you will be taxed based on the type of income you have earned: either business or capital gains.
If you sold NFTs as a business, you will be taxed on their sale as such, although you may find write-offs in the process, such as buying new software or equipment to make NFTs, for example .
If you sold NFTs as a personal investment, you will only have to pay tax on the increase in their value between the price at which you bought them and the price at which you sold them.
NFTs can be a fun pastime, just make sure you cover yourself so they don’t end up costing you more than you expected in the long run.
What is Cryptocurrency?
More Canadians than ever own cryptocurrency, a digital/virtual currency without central storage or authority. Cryptocurrency exists on several computer systems around the world and is usually tracked through a blockchain platform. Importantly, cryptocurrency is considered property in Canada.
How does cryptocurrency affect your taxes?
Like any asset, cryptocurrency comes with tax obligations. You will not be taxed when you acquire it or when you hold it, it is only when you unload it in some way (exchange, sale, gift, currency conversion, etc.) that you need to worry about tax.
How is it taxed? The short answer: it depends.
Cryptocurrency is not quite like any other investment. So much so that the rules are still being adjusted to deal with its popularity, which makes cryptocurrency income taxes quite unique.
As with NFTs, the rate at which you will be taxed depends on whether you are buying and selling as a business or just for personal income.
But consider that each case is different and will also depend on factors such as your other sources of income and the province in which you live. You should also consider how long you have held the currency and how you acquired it.
Still a little confused? H&R Block’s tax experts are certainly more qualified to help you with everything you need to know so you can maximize your tax return and ensure everything is completed correctly.
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