Barter and Cryptocurrency. When you dispose of one cryptocurrency in exchange for another cryptocurrency the barter rules apply. You must value the current cryptocurrency in Canadian dollars. The future cryptocurrency must again be in Canadian dollars in calculating the trade.
The resulting barter transaction must be reported as operating income or a capital gain depending on how the trade is carried out. These results must be reported on your income tax return.
Here are three examples of barter system using crypto:
1. Nick plans to buy and sell cryptocurrency‘s to make a profit.
He pays attention to the fluctuations in pricing of cryptocurrency‘s and profits on the volatility. Since Nick‘s activities are consistent with trying to make an operating income and is actively involved in daytrading these profits are losses can be considered as operating income. Nick sold $1 million of cryptocurrency in 2020 which he had purchased for $500,000.
The $500,000 profit in operating income will be reported on next 2020 tax return.
2. Michael bought it new living room set from a vendor that excepted bitcoin.
Michael had acquired $5000 worth of bitcoin to buy the items with. As time went on before the transaction had closed Michaels bitcoin increase by $1000 so there was a capital game that Michael needed to report. When Michael converted the 5000 bitcoin into Canadian dollars it actually came out to $6000.
Michael and had to pay 50% of that gain in taxes.
3. Connor bought 500 units of light coin which had a value of $500.
For this purchase Connor traded in 10 units of bitcoin for the 500 units of litecoin. And since Connor‘s value in bitcoin has increased vs. litecoin at the time of purchase Connor would have to convert the money to Canadian dollars take the capital gain and then purchase the litecoin at the cost base.
Connor would have to report the capital gain on his tax return.