# CRA Cost Base for Crypto Assets

A cost basis is used to calculate what the potential gain of a capital asset should be based on. To make it complicated, countries often have varying different ways to calculate a cost basis, especially for cryptocurrencies, which makes it complicated for investors.
Analysis by
Nitin Ashok, CPA, CFA
March 12, 2024 7:35 AM
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## Introduction

Investors navigating the complex world of cryptocurrency face the challenge of calculating their cost basis to determine potential gains and, subsequently, their tax liabilities. The Canadian Revenue Agency (CRA) introduces the adjusted cost basis method for calculating capital gains on crypto assets, adding a layer of complexity to an already intricate process.

The CRA mandates the use of the adjusted cost basis method, applicable when engaging in taxable events such as selling, gifting, trading cryptocurrency, or using it for services or products. Investors need to continually monitor their total holdings and purchase prices to adhere to the adjusted cost basis method.

## Calculating Cost Basis

The formula for calculating the cost basis is straightforward: CostBasis = (Amount of coins sold)×(Average cost of coins)

While seemingly simple, the CRA has implemented rules like the superficial loss rule to prevent the misuse of capital losses for tax avoidance. Canadian investors can use capital losses to offset gains indefinitely.

To calculate the average cost of coins purchased, each separate purchase of the chosen cryptocurrency must be documented. For instance, if one Bitcoin is bought for \$50,000 and another for \$60,000, the average entry price would be calculated as: Total price paid(110,000)/Total Bitcoin bought(2)=55,000(Average entry price)

## Superficial Loss Rule

The superficial loss rule is a safeguard against investors attempting to exploit the system. It becomes active when two conditions are met: buying identical crypto assets 30 days before or after the original disposal and owning or having the right to own the cryptocurrency at the end of the period.

For example, if an investor sells Bitcoin for \$50,000 and buys it back at the same price within 30 days, the paper loss of \$19,000 cannot be claimed due to the superficial loss rule.

## Conclusion

While the CRA is gradually developing guidelines for Canadian cryptocurrency investors, it lags behind other developed countries in taxation rules. DeFi protocols like yield farming and staking are yet to receive clear guidance. Investors should diligently track their trades and transactions to update the cost basis for each crypto asset owned.

Disclaimer

Opinions presented here are for discussion purposes only and do not reflect the views of MetaCounts Cashflow Inc. or its affiliates. This information does not constitute legal, accounting, or tax advice and should not be relied upon as such. Investors must be proactive in understanding and complying with CRA regulations until comprehensive guidelines are established.

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General

# CRA Cost Base for Crypto Assets

## Introduction

Investors navigating the complex world of cryptocurrency face the challenge of calculating their cost basis to determine potential gains and, subsequently, their tax liabilities. The Canadian Revenue Agency (CRA) introduces the adjusted cost basis method for calculating capital gains on crypto assets, adding a layer of complexity to an already intricate process.

The CRA mandates the use of the adjusted cost basis method, applicable when engaging in taxable events such as selling, gifting, trading cryptocurrency, or using it for services or products. Investors need to continually monitor their total holdings and purchase prices to adhere to the adjusted cost basis method.

## Calculating Cost Basis

The formula for calculating the cost basis is straightforward: CostBasis = (Amount of coins sold)×(Average cost of coins)

While seemingly simple, the CRA has implemented rules like the superficial loss rule to prevent the misuse of capital losses for tax avoidance. Canadian investors can use capital losses to offset gains indefinitely.

To calculate the average cost of coins purchased, each separate purchase of the chosen cryptocurrency must be documented. For instance, if one Bitcoin is bought for \$50,000 and another for \$60,000, the average entry price would be calculated as: Total price paid(110,000)/Total Bitcoin bought(2)=55,000(Average entry price)

## Superficial Loss Rule

The superficial loss rule is a safeguard against investors attempting to exploit the system. It becomes active when two conditions are met: buying identical crypto assets 30 days before or after the original disposal and owning or having the right to own the cryptocurrency at the end of the period.

For example, if an investor sells Bitcoin for \$50,000 and buys it back at the same price within 30 days, the paper loss of \$19,000 cannot be claimed due to the superficial loss rule.

## Conclusion

While the CRA is gradually developing guidelines for Canadian cryptocurrency investors, it lags behind other developed countries in taxation rules. DeFi protocols like yield farming and staking are yet to receive clear guidance. Investors should diligently track their trades and transactions to update the cost basis for each crypto asset owned.

Disclaimer

Opinions presented here are for discussion purposes only and do not reflect the views of MetaCounts Cashflow Inc. or its affiliates. This information does not constitute legal, accounting, or tax advice and should not be relied upon as such. Investors must be proactive in understanding and complying with CRA regulations until comprehensive guidelines are established.

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