Executive Summary

In Canada, crypto currencies are legal. They are not recognized as legal tender, nevertheless. Therefore, while individual businesses may choose to do so on their own risk, the CRA, which is comparatively more formal, will not accept crypto currency as payment for user taxes. Decentralized digital currencies like Bitcoin & Ether are not supported by governments, central banks, and or centralized organizations. The supply and demand for a given crypto currency determine how much it is worth on average. Its value may change, much like an investment in stocks or the rate of a currency exchange. . The revenue user receive from the purchase, sale, or trade of crypto currencies must be reported on user tax return as either company revenue or investment revenue. A crypto currency exchange is a website where users may trade crypto currencies. Although exchanges usually provide low fees, newcomers to crypto currency investing may find their more complex user interfaces, wide variety of trading options, and intricate performance charts perplexing.

Introduction

A crypto currency is a specific kind of digital asset that is protected by encryption. A block chain system is typically used to track and keep track of a transaction history. Decentralized digital currencies like Bitcoin & Ether are not supported by governments, central banks, and or centralized organizations. With the growing acceptance of cryptocurrencies like Litecoin and Bitcoin, this will soon play a bigger role in our dynamic way of life. As a result of this, people are becoming more aware of cryptocurrencies, therefore it should come as no surprise that cryptocurrencies will soon be the primary driver behind the growth of the Canadian economy in the years to come. Crypto currency can be obtained in a variety of ways, as new ones are continually being developed. Crypto currencies can be used for numerous different things, such as investing, paying bills, and making purchases. Transactions using crypto currencies frequently have tax implications. (Davis, J. (2011)

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Investing in crypto currency:

The supply and demand for a given crypto currency determine how much it is worth on average. Its value may change, much like an investment in stocks or the rate of a currency exchange. (Liew, J., 2019)

Buying crypto currency:

A digital wallet can be used to store crypto currency that has been purchased on an exchange. The value of each type of crypto currency is kept separate from the others. Usually, crypto currency holdings are not subject to taxes. User must keep records of the crypto currencies user buy, hold, and sell in order to declare them on user revenue tax form whenever user sell them. (Jani, S. (2018)

Disposing of Crypto currency:

When users sell their bitcoin, user could profit or lose money. Selling a crypto currency is the same as disposing of it. And if user does, there can be tax ramifications. The revenue user receive from the purchase, sale, or trade of cryptocurrencies must be reported on user tax return as either company revenue or investment revenue. To ensure accurate reporting, user must keep detailed records of user bitcoin sales and purchases. (Chason, E. D. (2019)

What is Crypto currency exchange?

A crypto currency exchange is a website where users may trade crypto currencies. Although exchanges usually provide low fees, newcomers to crypto currency investing may find their more complex user interfaces, wide variety of trading options, and intricate performance charts perplexing. Canadian crypto currency exchanges Binance Canada, Coinbase, Netcoins, Newton, & Coinberry are the most well-known. Although these organizations’ traditional trading interfaces could intimidate beginners, especially those without any expertise trading stocks, they also offer straightforward, user-friendly purchase options. (Kim, C. Y., 2018) The simplicity has a cost, though, as using the novice-friendly options to buy the same bitcoin costs far more than using the standard trading interface of each site. User may try to learn sufficient about how to utilize the popular trading platforms before making user first bitcoin purchase—or shortly after—in order to save money. If users are unfamiliar to crypto currency, double check that user preferred platform or brokerage allows Canadian dollars for fiat currency trades and purchases. Before user can start trading crypto currencies on that network, user would need to find another exchange to buy the tokens that user selected exchange allows since some exchanges only let user buy crypto currencies using other crypto currencies. (Bentov, I.,2019)

In addition, the exchanges are able to transfer a user's bitcoin holdings to their individual cryptocurrency wallets. Some are able to convert balances in digital currency into anonymous prepaid cards, which can then be used to withdraw monies from automated teller machines (ATMs) all over the world. While other virtual currencies, like those backed by gold or other real-world commodities, can be exchanged for it.

In most cases, the originators of a digital currency are not affiliated with the digital currency exchanges that make the trading of that currency possible. Digital currency providers (DCP) are firms that store and administer accounts for their customers, but do not normally issue digital currency to those consumers directly in one form of system. This style of system is known as a distributed ledger system (DLS). Customers make purchases of digital currency or sell their holdings of digital currency to digital currency exchanges, who then move the digital currency into or out of the customer's Digital Currency Platform (DCP) account. Although the majority of exchanges are officially independent organisations, a few of them are subsidiaries of DCP. It is up to the discretion of the DCP whether the funds held in those accounts are denominated in actual or fictional money, (Bentov, I.,2019).

A digital currency exchange may be a traditional firm with physical locations or an entirely online operation. It is a physical establishment that deals in the exchange of digital currency as well as more conventional forms of payment. It is an internet firm that deals in the exchange of digital currencies and money that has been electronically transferred.

Most digital currency exchanges are located outside of Western countries in order to avoid government regulation and potential legal trouble. They do, however, deal in Western fiat currencies and keep bank accounts in a number of countries in order to facilitate deposits in a variety of national currencies, (Chu, D. (2018)

Crypto currency broker:

Brokers that deal in crypto currencies make the process of purchasing crypto currencies easier by offering user-friendly interfaces that interact with exchanges on user behalf. Some charge fees that are more expensive than exchanges. Others promise to be "less" while earning by either not completing user trade at the best price on the market or by selling information about what user and others dealers are buying and selling to sizable brokerages or funds. Wealth-simple Crypto is one of the most prominent cryptocurrency brokers. Brokers are unquestionably useful, but user should proceed with caution as user might not be able to eliminate user bitcoin assets from the platform. For instance, Wealt-hsimple Crypto does not allow user to withdraw their bitcoin holdings. Although it might not seem important, shrewd crypto currency investors prefer to put their money in digital wallets for increased protection. Some choose offline, hardware crypto currency lockers for even more security. (Chu, D. (2018)

How to correct tax affairs:

If user fails to record any income or capital profits from bitcoin transactions, user may be subject to tax, penalties, and interest. User can avoid or lessen penalties and interest by proactively taking care of user tax difficulties. User can declare revenue that user neglected to record in earlier years and make adjustments to user tax arrangements, such as GST/HST return revisions.

i. Request a change to user tax return and benefits.

ii. Adjustment to the GST/HST return

iii. Request a correction through the Voluntary Disclosures Program. (Lobban, T. (2021).

Risk involved in crypto currency investing:

Crypto currency has the potential to create investors enormously wealthy, just like any other investment, but one poor day might cause an investor to lose all of their money in a short period of time. But there are also other risks connected to crypto currencies. Future advancements are unclear while governments are still discussing laws because it was only adopted in 2009. As a result, we typically urge investors to consider the following risks before jumping on the crypto currency bandwagon (this is a succinct and partial list; thoroughly consider all connected risks in light of user particular financial situation):

i. Volatility

ii. Security

iii. Illiquidity

iv. Insolvency

v. Regulation

Is crypto currency a good investment?

Investors who see cryptocurrencies as a "get-rich-quick" plan run the danger of losing a loads of cash and become extremely angry if they don't succeed.

If investors are informed of it and prepared to embrace the risks involved, cryptocurrencies could play a substantial part in a well-diversified investment portfolio that includes stocks, bonds, real estate, commodities, and, yes, currencies. If investors allocate the right percentage of their investment to currency based on their risk tolerance, they might potentially make a lot of money by investing in cryptocurrencies. By spreading their portfolio with other assets, at the absolute least, investors lower their chance of losing their invested capital if the crypto market drops. (Cunha, J.,2019)

Finally, we usually suggest that newcomers to the bitcoin market start off modestly. Before making small, incremental deposits, become familiar with how cryptocurrencies work. Similar to this, we frequently urge inexperienced investors to read up on investing strategies before considering a very complicated investment like bitcoins. As opposed to investing in cryptocurrencies, investing in more well-established asset classes, including equities of companies user are acquainted with, ETFs, or unit trust, may offer greater transparency, past investment success, and risk disclosures.

Conclusion

Bitcoin and other cryptocurrencies are a hot topic in the global financial system. Cryptocurrency exchange rates are incredibly unstable. Trading these cryptocurrencies entails a high level of risk as a result. A large number of investors have shown interest in their expansion. They are portable and light. Because cryptocurrency exchanges are not protected by coverage like the Canada Deposit Insurance Corp., they are susceptible to theft and hacking (CDIC). If user forget or forget the codes to log into user account, user risk losing much more money than the millions of dollars worth of Bitcoin that have already been lost. Bitcoins are still regarded as the apex of digital currencies despite their flaws. It has paved the way for economic growth and offered emerging countries a new form of money. More solutions are available for consumers to handle their finances in this manner. Cryptocurrencies are expected to enter the financial scene as fundamentally transform the financial landscape of the world, whether or not bitcoins manage the high changes.

References

Bentov, I., Ji, Y., Zhang, F., Breidenbach, L., Daian, P., & Juels, A. (2019, November). Tesseract: Real-time cryptocurrency exchange using trusted hardware. In Proceedings of the 2019 ACM SIGSAC Conference on Computer and Communications Security (pp. 1521-1538).

Cunha, J., & Murphy, C. (2019). Are Cryptocurrencies a Good Investment?. The Journal of Investing, 28(3), 45-56.

Chason, E. D. (2019). Cryptocurrency Hard Forks and Revenue Ruling 2019-24. Va. Tax Rev., 39, 279.

Chu, D. (2018). Broker-dealers for virtual currency: Regulating cryptocurrency wallets and exchanges. Colum. L. Rev., 118, 2323.

Davis, J. (2011). The crypto-currency. The New Yorker, 87.

Jani, S. (2018). The growth of cryptocurrency in India: Its challenges & potential impacts on legislation. Research gate publication.

Kim, C. Y., & Lee, K. (2018, January). Risk management to cryptocurrency exchange and investors guidelines to prevent potential threats. In 2018 international conference on platform technology and service (PlatCon) (pp. 1-6). IEEE.

Liew, J., Li, R. Z., Budavári, T., & Sharma, A. (2019). Cryptocurrency investing examined. The Journal of The British Blockchain Association, 8720.

Lobban, T. (2021). Singing The Crypto-Currency Tax Blues. Personal Finance Magazine, 2021(484), 7-8.