Introduction
Decentralized, trustless and permissionless activity is at the heart of the crypto sphere. With that comes the ability for anyone, anywhere to create their own cryptocurrency, or Shitcoin. With great marketing and enough hype, they can seem to be a great project especially when a face is not required to give a product validity in the crypto sphere.
So What is a Shitcoin?
The vulgar name is a way to describe a cryptocurrency with little to no value or purpose. Anyone can technically create their own cryptocurrency. So, not every coin will have a quality project and utility behind them.
Great examples of recent Shitcoins, often renamed to ‘Community Coins’ are:
How does CRA tax Shitcoins?
Shitcoins/Altcoins are not seen as their own type of cryptocurrency and are classified the same as other crypto assets. As there are no unique rules CRA has implemented for Shitcoins, we can assume regular taxable events apply which include:
- Trading
- Gifting Shitcoins
- Earning income from Shitcoins
The CRA follows a 50% rule, where only 50% of cryptocurrency gains are taxable. Let’s see this in an example:
Jeremy buys $1,000 worth of Dogecoin at $0.10 each, giving him 10,000 dogecoin tokens. He got extremely lucky and timed the market right before dogecoin hit its all-time high of $0.70, raising the value of his Shitcoins to $7,000.
Jeremy is happy with his gain and decides to sell all of his Dogecoin. Jeremy's cost basis is $1,000 with a fair market value at the time of sale of $7,000, giving him a gain of $6,000.
Jeremy only has to pay capital gains tax on half of his total gain, leaving a taxable gain of $3,000.
Shitcoins and Tax Harvesting
Let’s be honest, most investors are going to make a loss when investing in Shitcoins. To salvage something positive from these losses, you can use them to offset any profits you may have. These losses can be carried back 3 years and forward indefinitely.
Conclusion
Shitcoins are the definition of Cryptocurrency volatility, pure speculation based on projects with zero use cases and all hype. A few investors have become incredibly rich off of Shitcoins but please invest at your own risk.
Disclaimer: CRAs relationship with Cryptocurrency
Although CRA continues to slowly create guidelines for Canadians investing in cryptocurrency, they are still way behind several other developed countries when it comes to the rules surrounding taxation. Many DeFi protocols, such as yield farming and staking are yet to receive proper guidance from CRA. We should expect to see the number of guidelines rapidly increase as Canadian investors call for them but until then, crypto investors have to take positions that may or may not be accepted by CRA.
*Opinions are for discussion purposes only. This does not represent the views of MetaCounts Cashflow Inc. or its affiliates. Furthermore, this does not constitute legal, accounting, or tax advice of any kind and should not be relied upon as such.
