The Canada Revenue Agency (CRA) recognizes cryptocurrencies as line items for taxes. So, if you're residing in Canada and are earning income from your cryptocurrency endeavors, you'll have to report it. And these include your non-fungible tokens or NFTs.
Not sure how to make the right report for your NFT income when filing your taxes? Here's a basic guide that will help you get started. And if you need further assistance, you can always look for reliable financial advisors in Vancouver to help you make the correct reports.
How to Report an NFT
Since the CRA's Income Tax Act labels NFTs as commodities, the income you generate from your NFTs will be considered either of the following:
1. Business income
The money you make from NFTs is considered business income if you're a creator and seller of NFTs and make profits. If your NFT income is considered business income, one-hundred percent of it is taxable.
Furthermore, you will have to state your NFT business income on your Statement of Business or Professional Activities form and consider it part of your business activities. Of course, if your NFT business ever experiences more expenses than earnings, you'll have to label it as a business loss for any experienced losses.
2. Capital gains
On the other hand, your NFT income is labeled a capital gain if you've ever profited from your NFT investments. For instance, if you purchased an NFT for $5,000 and managed to sell it for $8,000, you will have to state that you generated a profit amounting to $3,000 on your tax return form.
Do note that fifty percent of your capital gains are taxable. Moreover, you might have to file a Foreign Income Verification Statement if the sum of your specified foreign income goes over $100,000. And similar to a business income, you will have to report capital losses if you sold your NFT for a price lower than the original amount you've bought it for.
Don't Forget to Keep a Thorough Record of Your NFT Transactions
Make sure to keep a thorough record of your NFT transactions to present how you calculated the value of your NFT transactions. These records will also come in handy if you need to reach out to financial advisors in Vancouver.
Ideally, your transaction records should contain the following:
Extra costs linked to the NFT purchases
Adjustments that are done to the base price of particular NFTs
Exact details involved in all your NFT transactions
The costs linked to the sale of NFTs
What Happens if You Don't Report Your NFT Income?
As Canadian law states, you should give accurate information when filing your income tax return. Omitting your NFT income to the CRA is similar to not reporting any of your sources of income, leading to a breach of law.
According to the CRA, any omitted or false information on your income tax return results in receiving the Gross Negligence Penalty. The CRA will impose a penalty of fifty percent of the total taxes you failed to pay.
Reporting your NFT income might seem tedious, especially since you'll have to keep a complete record of all your transactions to ensure they're calculated accordingly. But then again, you must do your part as a law-abiding citizen by paying your taxes correctly. But by getting help from reliable financial advisors in Vancouver, you can get help in calculating your gains, losses, and the taxes you'll have to settle.