Cryptocurrencies have risen in popularity in recent years. This development is thanks to decentralized finance or DeFi, an application of blockchain technology. According to Triple A, there are more than 300 million users globally as of 2021 and around 1.2 million traders in Canada alone who make (or lose) money out of crypto exchanges.
Like any other taxpayers in Canada, crypto traders must file their tax returns annually and pay taxes to the Canada Revenue Agency. However, there may be instances when you might overlook the filing and payment of correct taxes for what you’ve earned or what you were paid for, whether intentionally or by mistake. This includes your gains from cryptocurrencies and digital assets.
Nowadays, the CRA can collect information from every financial institution and business in Canada, including banks and traders. As countries started sharing information on financial transactions, it is now easy to get caught and slapped with heavy penalties or even a criminal record.
How Cryptocurrencies Are Taxed
In Canada, cryptos are seen as a commodity, which means they may be subject to capital gains tax or income tax. As an income tax, you will be required to pay the income tax based on the proceeds.
CRA considers cryptocurrencies a capital asset. This means you will be paying taxes for capital gains after disposing of them – whether by swapping, purchasing or giving them to someone else. Since Canada does not have a specific capital gains rate, cryptos are taxed at the same rate as your federal income tax rate.
What Is a Voluntary Disclosure Agreement
Getting into trouble with CRA because of incorrect filing of taxes can be a headache. You can avoid problems with state agencies through Voluntary Disclosure Agreement (VDA).
A VDA is a binding agreement between your company and the government to step forward and voluntarily pay your tax dues. With this, you can take advantage of state concessions such as lowered penalties and reduced years considering the outstanding taxes owed.
You can ask for help from a voluntary disclosure firm on how to go about getting a VDA or qualifying for the Voluntary Disclosure Program (VDP).
What Is a VDP and Its Advantages
The Voluntary Disclosure Program or VDP is a tax relief program offered by the government on a case-to-case basis. The program allows taxpayers to fix their tax filing errors before the CRA discovers the mistake. With VDP, a taxpayer approved for this program may benefit from prosecution relief and sometimes penalty or partial interest relief on taxes otherwise responsible for.
How a Tax Professional Can Help You Get Into the VDP
A taxpayer can file for a voluntary disclosure either anonymously or with a revealed identity. A voluntary disclosure firm can help you decide which is the best option.
There are also two programs under the VDP, and these are the limited and general programs. With the limited VDP, the taxpayer is not subject to criminal prosecution and can be exempted from penalties that would otherwise apply in cases of a taxpayer’s negligence. A VDP general program, on the other hand, is for the taxpayers whose conduct doesn’t fall within the limited schedule.
So if you have been earning or selling cryptocurrency and you’d like to get into the VDP, be sure to educate yourself about the program. It is also best to ask for assistance from a tax professional.