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Welcome to Wirex News - Your Crypto Podcast, where we have engaging conversations with experts, thought leaders, and innovators exploring wide-ranging topics around cryptocurrency, financial management, security, and many more interesting subjects.
Welcome to the Wirex Weekly Crypto Podcast where we dive into engaging conversations with experts, thought leaders and innovators. And I'm your host, Liana. I'm happy to introduce our guest for today's podcast episode, Adam Saville Brown, the general manager at Koinly. Welcome, Adam. Thank you so much for being here with us.
Speaker 2:Thanks for having me on. It's a pleasure to be here.
Speaker 1:Yeah. And today, we're tackling a topic that's pretty important in the world of finance, crypto taxes. We'll be breaking down everything you need to know about how taxes work when it comes to dealing with cryptocurrency. But before we start, Adam, could you tell us about your background a bit more?
Speaker 2:Sure. So I've been in the tech industry since I left university. You know, I applied for an unpaid internship at a tech company, and I was lucky enough that that company, was Groupon and went on to do pretty well. And since then, I've I've been working in different aspects of technology, working my way kinda through the through the leadership structure. And so I've worked in artificial intelligence for smart buildings and building SaaS platforms until I found a home in crypto.
Speaker 2:And I've been with Koinly now for about two and a half years, and I've been lucky to work with some knowledgeable professionals in the space, speaking at numerous industry events. And, you know, I'm by no means a qualified accountant, but I've having the pleasure of working at Koinly has given me the the opportunity to spend time around people that are qualified in this space. So it's been able to give me some, the opportunity to to learn more about kind of crypto, crypto taxes, and how different government bodies are are addressing, this problem. So what I'm hoping to do today is just answer some questions based on my understanding of the crypto taxes, in in Canada. And, by no main no way is this financial advice, but it it's great to kinda get the information out there to people.
Speaker 1:Yeah. Thank you for being here for that. You know? So how are taxes for cryptocurrencies different from regular taxes?
Speaker 2:So I think Canada, cryptocurrencies are are not treated as a currency. Instead, they're classified as commodities by the Canadian Revenue Agency. So this classification means that profits from cryptocurrency may be classed as capital gains or business income, depending on how the CRA views transactions and your investment activities. And this is done on a case by case basis and really depends on the frequency of your transactions as well as many other factors. One of which is your intentions.
Speaker 2:If you have capital gains from crypto, you only pay income tax on half of those capital gains. Meanwhile, if you have business income, you'll pay income tax on the entirety of the profit that you generate.
Speaker 1:Cool. And and, you know, what are some of the common misunderstandings people have about crypto taxes, you know, and how can we clear them up?
Speaker 2:Great question. So a a common misunderstanding is that crypto transactions are anonymous. And by being anonymous, they're therefore exempt from taxes. You know, the government doesn't know about them. However, the CRA requires investors to report all gains, losses, and income from cryptos.
Speaker 2:And we've seen in other jurisdictions, exchanges, being, required to report in that. And, I can give a quick story. The other day, I was, at the barbers, and I was wearing a Koinly hat. And someone stopped me and asked me about it, and I explained that, you know, we're a crypto tax software company. And he goes, oh, the people I avoid.
Speaker 2:And, and I was like, well, that's that's definitely the wrong approach to be having with that because, you know, it's actually an obligation that you have. And another misunderstanding is that only profits need to be reported. In reality, both your gains and losses should be reported as they can significantly affect your tax liability. And really what we what we wanna see is more public education and, use cases that are clear and accessible exam examples that explain these tax obligations. But the re the reality is that the responsibility is on us as industry leaders, like both Wirex and Koinly and others out there to educate people in the market on knowledge gaps and misunderstandings, which is why, you know, education becomes such a key part of what we do and one of reasons we're doing, you know, this webinar today.
Speaker 1:Yes. So, you know, I I always say that ignorance is a choice. Right? How do different, crypto activities like trading, mining, and using DeFi platforms affect taxes?
Speaker 2:So each type of crypto activity has its own distinct tap tax implications. Like trading cryptocurrencies typically will result in a capital gain or loss for an individual investors, and it must be reported accordingly. And if you're mining crypto, it can be considered a business activity or even just a hobby, like if you bought yourself a small built a small mining rig, and that will affect how the income's taxed. If it's a business, the income's fully taxable, and like normal businesses, expenses are deductible. While individuals will only pay tax upon the disposal of the mining rewards.
Speaker 2:So, you know, if the and that's an interesting point to talk about, which is, you know, when the when it actually becomes a taxable event, and that's normally on when you've disposed of the asset. So whether you're changing, say, Bitcoin to Ethereum, or you're you're selling it for Canadian dollars. And using DeFi platforms can involve complex transactions like staking and yield farming, and the tax treatment of those activities can really vary. The CRA views your investments and whether you have business income or capital gains based on the activities you're doing and, again, the intention. So your earnings from these activities can generally be considered the, business income if you're doing it frequently for profit.
Speaker 2:But as it is such a complex subject, really, I must reiterate that you need to speak to a tax professional. Like, when I'm doing my taxes, that's the first thing I do. And I use a system like Koinly to track my transactions throughout the year just so that when it comes to tax time, it's easy. Because, you know, we've all forgotten about wallets in our time.
Speaker 1:Yeah. I have a friend who uses Koinly, actually, and and he just raves about it. So, you know, you were saying earlier on, that we should be reporting, like, you know, our our gains and our losses. Right? So does that include really, you know, relatively low value transactions as well?
Speaker 2:Actually, I get asked this quite a lot. So any capital gains or income that you have from cryptocurrency transactions must be included in the figures you report no matter how small. And to put that in in the concept of, like, an accountant going through it, if you were to use an accountant to and not a software to do this, if you were doing trades like, we have a customer that does bot trades, and he does, like, a 100,000 transactions a month, and they're all very small amounts. And, like, an accountant just possibly couldn't go through and reconcile all those small transactions. And that's something that a system like us, ours will do.
Speaker 2:And the CRA requires gains and losses to be reported in your schedule 3 and your crypto income to be reported in your income tax return t one. So you have to keep track of those no matter how small they are, even if it's just, you know, a couple of cents here, a dollar there.
Speaker 1:Right. And and how can individuals prepare for the potential audits related to their crypto transactions?
Speaker 2:This is a really topical conversation alone because from what I'm seeing now is as regulatory authorities are getting better at, you know, viewing cryptocurrency transactions, people are starting to get notified that they, they may get a potential audit or, you know, that they have to provide further information. So, really, individuals should keep detailed records of all their crypto transactions, and that includes, like, the dates, the value in, Canadian dollars at the time of the transaction, and the purpose of each transaction, and the wallets addresses involved, which helps you in 2 ways. Because if you're sending it from one of your wallets that you own to another wallet you own, or from a wallet you own to someone else's as a disposal event, it's important to track what it was. Right? So that they the transaction gets classed in the right way.
Speaker 2:And using professional tax software designed for cryptocurrency can really help keep this information organized and readily available for audits. If you go to Koinly and you connect all your wallets and you go about your business over the next few years as as you normally would, you know that at the end of the tax year, all your transactions and all your reports are being pulled into one place, and you can just download that that report and provide it to your accountant to help with your transaction or no with your tax filing.
Speaker 1:Right. And and, you know, you were you were saying earlier on as well to keep track of of every transaction. Right? You know, I've spoken to people before and they've usually just kind of said, like, oh, yeah. Everything's on chain.
Speaker 1:You know, just have to check, you know, whatever, ether scan or whatever. But, I think that's really useful, you know, advice to to keep track of of, every crypto transaction because, you know, it's it's it's easier to, at least have everything on hand, right, when you're doing your taxes, I guess.
Speaker 2:Exactly. And, like, that's why we have a team that's dedicated to integrate to, even, like, smaller cryptocurrencies or new projects, like, to make sure that we can ingest those because it shouldn't just be Alt Bitcoin and Ethereum that I need to track. Right? It's all across the board. And, you know, you buy a $100 of a crypto that doesn't do very well on a a interesting wallet, and and suddenly you're, you know, you're lost at what to do with it.
Speaker 2:Alright? So having something like this to pull it all in definitely helps.
Speaker 1:And and what about crypto donations? Like, how does that affect?
Speaker 2:Interesting point. So what I would say on that one because it's it's one that I don't feel detailed enough to kinda give an overview on. We've actually just released a few blog articles specifically about that because it's something that we've seen coming up more and more recently. So we we've started to, we've started to to put out some educational content around cryptocurrency donations. And what I can do is follow-up with the link afterwards so that we can, make it accessible.
Speaker 1:Yeah. I'd love to, read that. And and what what what's the best way to report crypto transactions and holdings to stay on the right side of the law?
Speaker 2:So the best way is to to maintain a thorough and accurate record and to use approved tax software that supports the cryptocurrency transactions and the cryptocurrencies that that you're trading with. And these reports have to be detailed. They have to include all your trades, sales, exchanges, donations, and other disposals of cryptocurrency assets.
Speaker 1:And, you know, what steps, should someone take if they've made errors on previous crypto tax filings?
Speaker 2:This is one that's coming up quite a lot because as I mentioned, you know, people are starting to to really pay attention to how they report on this. So it's advisable to amend prior returns and correct any mistakes if you feel that you've made some or have been notified by, an agency that you've made some. The CRA allows tax papers, taxpayers to adjust their returns for any years in the previous 10 years. And you can use the voluntary disclosure program to try and avoid penalties and interest. I think what it really comes down to again is that is that intention element.
Speaker 2:Right? Like, if if you're trying to do the right thing, then, we've heard that the reporting bodies are are happy to kinda work with you on it. You know, there can be some fees and penalties. But if if you've forgotten crypto and you found it, or you just wanna go and amend your tax return, you know, reach out to to the CRA through the voluntary disclosure program and, you know, see what can be done.
Speaker 1:What and, you know, are there extra challenges for businesses that accept crypto payments when it comes to taxes?
Speaker 2:So, yes. Businesses face specific challenges such as, determining the fair market value of cryptocurrencies at the time of transactions, and keeping meticulous records of of all the transactions that they have. So the businesses must consider how kind of GST and HST applies to the transactions that involve cryptocurrency, which is really complex, tax reporting time. And we're seeing the interest in this pick up more and more. And it's becoming a a big, big reporting challenge for those companies that are working with cryptocurrency.
Speaker 2:So what we've done is is we've built an automatic integration to both Xero and QuickBooks. And and these could be used even if you have just the coin and free account, as long as you're within 10,000 transactions with it. And, they'll be able to pull it into an appropriate, bookkeeping system for you.
Speaker 1:Brilliant. And, you know, how can people keep keep up with the changes in crypto tax rules?
Speaker 2:Another cracking question because it's it's something that as a company is one of our key priorities. And all that, I would say, regularly consulting with the CRA's website, you know, follow the rep sorry. Follow reputable tax advisory services and subscribe to updates from financial technology news sources, which is is stand good practice. Additionally, and the one that I really like to to push when talking to people is to engage with a a professional tax adviser who specializes in cryptocurrency. Then they can provide tailored advice and and insights into current and upcoming regulations.
Speaker 2:We've actually gone as far as to have a, cryptocurrency accounting directory on our website that provides information into local accounting firms that, are proficient in cryptocurrency.
Speaker 1:Brilliant. Is there anything else you'd like to share that we've probably missed out?
Speaker 2:Yeah. Absolutely. There's a couple of additional points that I think are worth mentioning. So first and foremost, considering the complexity of crypto taxes, like, I really wanna hammer home the point that consulting with a certified professional accountant that has experienced in cryptocurrency can be invaluable. They could provide the personalized device and ensure compliance with the latest tact law tax laws and regulations.
Speaker 2:Additionally, using services like Coinlib will not only simplify the process of tracking the transactions for tax purposes, But we also serve as an excellent portfolio tracker. So if you have wallets kind of all across the place, it can bring it into one location and make it easy to view. So then you know that everything's reporting right throughout the year. Kinda making small steps and changes every day in terms of your reporting to make sure you don't have that that stress at the end of the tax season. And many users find Quaili helpful for its, real time insights as their investments, which helps them make more informed decisions.
Speaker 2:So I would just say it's crucial to stay proactive and organized when when dealing with cryptocurrency and your reporting obligations. Keeping those detailed records from the start can save a lot of time and stress, especially when, as I said, coming up to tax season or dealing with audits.
Speaker 1:That's really sound advice. Thank you so much for that. And that's koingly.io. Right? K o inly.io.
Speaker 2:Exactly. Koinly with a k.io.
Speaker 1:Brilliant. Before we wrap things up, I I really just want to say a big thank you to Adam for sharing his insights with us today. This conversation on crypto taxes has been valuable and informative. Thank you so much, Adam.
Speaker 2:No problem. And thank you for having me here today. It's been a pleasure. You know, we love sharing information and education to to as many people as possible on this space.
Speaker 1:Great. And to all our fantastic listeners, I hope you've enjoyed this conversation. Don't forget to express your support by liking, subscribing, and sharing this episode. Thank you for tuning in. And until we meet again, stay well.