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Own a Crypto Card - Here's How CRA Taxes them

Crypto cards have surged into the public eye in the last few years as many large exchanges have started giving investors the ability to spend their cryptocurrency with a crypto debit card. A great example of this is crypto.com’s debit card which is packed with features.
Analysis by
Nitin Ashok, CPA, CFA
March 12, 2024 7:35 AM
|
5 Min Read.
Own a Crypto Card - Here's How CRA Taxes them
Table of Contents

    Introduction

    In recent years, crypto cards have captured the limelight, courtesy of major exchanges offering investors the convenience of spending their cryptocurrencies through crypto debit cards. A prime example is crypto.com's feature-rich debit card. These cards typically involve converting cryptocurrencies into Canadian dollars for online or real-life transactions, accompanied by enticing rewards like crypto-based cashback. However, the pertinent question remains: How does the Canada Revenue Agency (CRA) tax transactions involving crypto cards?

    Taxing Crypto Card Transactions

    The CRA deems purchasing goods or services with cryptocurrency as a taxable event. Each transaction through a crypto card is treated as a disposal, akin to trading cryptocurrency for Canadian dollars. Consequently, capital gains tax is levied on 50% of any profit generated during this "trade."

    Example:

    Consider John, who converts $100 worth of Bitcoin into a new watch worth $200 using his crypto card. With a cost basis of $100, his gain is $100, subject to 50% capital gains tax – in this case, $50.

    Taxation of Crypto Card Rewards

    Crypto cards often sweeten the deal by offering rewards, such as cashback. While the CRA does not provide specific guidance on taxing these rewards, investors can categorize them as either capital gains or business income. Rewards like cashback are likely taxed upon receipt at their fair market value. The adjusted cost basis method, as per CRA guidelines, suggests keeping the Canadian dollar value of total rewards as the cost basis, subject to 50% capital gains tax on any gains made.

    Illustration:

    Consider the 1% cashback offered by crypto.com's basic card. If $100 is spent, $1 in CRO is received. Taxation occurs at the fair market value when received, with any gain subjected to 50% capital gains tax.

    Utility of Crypto Cards

    Crypto cards provide a practical avenue for using surplus cryptocurrency directly for real-life purchases without the need for large fiat withdrawals. For those optimistic about the long-term potential of cryptocurrencies, crypto cards offer a seamless way to integrate digital assets into everyday transactions.

    Top Crypto Cards to Explore

    The crypto card landscape is expanding rapidly. Here are some notable options to dip your toes into the world of cryptocurrency transactions:

    • Crypto.com Visa Card (Larger Rewards)
    • Gemini Credit Card
    • Coinbase Visa Card
    • BlockFi Rewards Card

    Conclusion

    While crypto cards may not be suitable for everyone, they offer a straightforward means of earning cashback on routine purchases. For most users, this aligns with regular debit card usage, making the integration of crypto cards a logical step to accrue free rewards.

    Disclaimer: CRAs Relationship with Cryptocurrency

    Despite the evolving landscape, the CRA's guidelines on cryptocurrency taxation are still in their infancy. As Canadian investors await more comprehensive rules, the ambiguity remains, especially concerning decentralized finance (DeFi) protocols. The expectation is for increased guidelines as investor demand grows. The opinions presented are for discussion purposes only and do not represent the views of MetaCounts Cashflow Inc. or its affiliates. Moreover, they should not be considered legal, accounting, or tax advice of any kind.

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    Taxes

    Own a Crypto Card - Here's How CRA Taxes them

    Introduction

    In recent years, crypto cards have captured the limelight, courtesy of major exchanges offering investors the convenience of spending their cryptocurrencies through crypto debit cards. A prime example is crypto.com's feature-rich debit card. These cards typically involve converting cryptocurrencies into Canadian dollars for online or real-life transactions, accompanied by enticing rewards like crypto-based cashback. However, the pertinent question remains: How does the Canada Revenue Agency (CRA) tax transactions involving crypto cards?

    Taxing Crypto Card Transactions

    The CRA deems purchasing goods or services with cryptocurrency as a taxable event. Each transaction through a crypto card is treated as a disposal, akin to trading cryptocurrency for Canadian dollars. Consequently, capital gains tax is levied on 50% of any profit generated during this "trade."

    Example:

    Consider John, who converts $100 worth of Bitcoin into a new watch worth $200 using his crypto card. With a cost basis of $100, his gain is $100, subject to 50% capital gains tax – in this case, $50.

    Taxation of Crypto Card Rewards

    Crypto cards often sweeten the deal by offering rewards, such as cashback. While the CRA does not provide specific guidance on taxing these rewards, investors can categorize them as either capital gains or business income. Rewards like cashback are likely taxed upon receipt at their fair market value. The adjusted cost basis method, as per CRA guidelines, suggests keeping the Canadian dollar value of total rewards as the cost basis, subject to 50% capital gains tax on any gains made.

    Illustration:

    Consider the 1% cashback offered by crypto.com's basic card. If $100 is spent, $1 in CRO is received. Taxation occurs at the fair market value when received, with any gain subjected to 50% capital gains tax.

    Utility of Crypto Cards

    Crypto cards provide a practical avenue for using surplus cryptocurrency directly for real-life purchases without the need for large fiat withdrawals. For those optimistic about the long-term potential of cryptocurrencies, crypto cards offer a seamless way to integrate digital assets into everyday transactions.

    Top Crypto Cards to Explore

    The crypto card landscape is expanding rapidly. Here are some notable options to dip your toes into the world of cryptocurrency transactions:

    • Crypto.com Visa Card (Larger Rewards)
    • Gemini Credit Card
    • Coinbase Visa Card
    • BlockFi Rewards Card

    Conclusion

    While crypto cards may not be suitable for everyone, they offer a straightforward means of earning cashback on routine purchases. For most users, this aligns with regular debit card usage, making the integration of crypto cards a logical step to accrue free rewards.

    Disclaimer: CRAs Relationship with Cryptocurrency

    Despite the evolving landscape, the CRA's guidelines on cryptocurrency taxation are still in their infancy. As Canadian investors await more comprehensive rules, the ambiguity remains, especially concerning decentralized finance (DeFi) protocols. The expectation is for increased guidelines as investor demand grows. The opinions presented are for discussion purposes only and do not represent the views of MetaCounts Cashflow Inc. or its affiliates. Moreover, they should not be considered legal, accounting, or tax advice of any kind.

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