Staking and Yield farming Accounting and taxes
- CRA REPRESENTATION
Are the proceeds from Validators, Staking and Yield Farming taxable in Canada?
How can TMP assist with Crypto rewards from Staking and Yield Farming calculations?
Determine the classification of income (Investment or Business)
Derive the value of rewards or proceeds received
Maintain a weighted average ACB of reward coins
Calculate gains/losses from disposition of reward coins
Understanding Staking and Yield Farming: Key Facts
Recognition of Income
Income Amount
Adjusted Cost Basis Calculation
Sale of Rewards
Losses
Possession of rewards
What documentation and records should I maintain for tax purposes?
- Wallet addresses
- Centralized exchange trading data
- Purchase documentation
- Transfer of Fiat in wallet or exchanges
- ICO purchase records
- Any other elevant documents
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FAQ
- Please put checklist we send clients
- Crypto trades in CSV format from each centralized exchange
- Summary timeline of trades and holdings
- API key of all available exchanges
- Wallet addresses of holdings and Defi trading wallets
- Summary of which Blockchains you traded under
- Open Sea Accounts for NFT holdings
- Any other related activity such as (Staking, Yield Farming, air Drops and other)
Staking and yield farming income can be categorized as investment or business income based on your level of involvement and intentions:
- Investment Income: If you participate casually for passive income with a long-term holding strategy, it’s typically considered investment income, subject to capital gains tax upon asset sale.
- Business Income: Active, regular participation with profit generation as the primary goal may lead to classification as business income, subject to self-employment or business tax rates.
- Hybrid Scenarios: Combining passive investment with active staking or yield farming can complicate income separation and result in varied tax treatments.
In Canada, taxation of cryptocurrency mining or staking income depends on whether it’s a business or investment:
- Business Income:
- If it’s a significant business, report profits on your income tax return, subject to standard tax rates.
- Deduct eligible expenses (e.g., electricity, hardware, software) related to mining or staking.
In Canada, you must report and pay taxes on cryptocurrency rewards, even if you can’t access or convert them to fiat currency. Key points:
- Income Recognition: Crypto rewards, like from staking or mining, count as taxable income upon receipt, not conversion.
- Fair Market Value: Determine the rewards’ fair market value when received, using the exchange rate or reliable methods.
- Tax Reporting: Report these rewards as income on your tax return, using their value at receipt.
- Tax Liabilities: You may need to find a way to pay taxes on inaccessible rewards, possibly in local currency, even if you must liquidate other assets.
Taxing staking and yield farming rewards depends on your jurisdiction and use. Common taxable scenarios:
- Receipt of Rewards: Rewards are taxable income upon receipt
- Conversion to Fiat: Converting to fiat currency triggers taxation, with gains or losses reported.
- Exchange for Cryptos: Swapping rewards for other cryptocurrencies is taxable, based on fair market value at the exchange.
- Use for Purchases: Using rewards for purchases has CRA barter laws apply.
- Holding and Capital Gains: Capital gains tax applies when selling or exchanging held rewards.
Based on the following factors different forms may need to be submitted: 1. If the income is under you personal name, Corporate name, and/or other structure. 2. Is the income considered business income, investment income or Captal gains/losses.
In Canada, you can generally offset losses from staking and yield farming against gains from other cryptocurrency transactions, such as trading or selling other cryptocurrencies. The Canada Revenue Agency (CRA) treats cryptocurrencies as a commodity for tax purposes, and you can apply the same principles that apply to other commodity gains/losses.
When you unstake or withdraw funds from yield farming in Canada, you may incur capital gains. Thus depends if pairing of coins constitutes a disposition. CRA does not have clear regulations surrounding this matter and it best to speak with one of our professionals to discuss alternatives.
In Canada, you must report rewards received in cryptocurrency, even if you haven’t converted them to fiat currency. The Canada Revenue Agency (CRA) treats these rewards as taxable income, based on their value in Canadian dollars at the time of receipt. Keep accurate records and report them on your tax return to avoid penalties.
- Use cryptocurrency portfolio tracking software to monitor your DeFi transactions automatically.
- Manually record all transactions, labeling them with details like date, amount, fees, and type.
- Take periodic snapshots of your portfolio and account balances.
- Keep track of the cost basis of your assets, including transaction fees.
- Consider consulting a tax professional for accurate accounting and tax compliance.
- Secure your transaction records and stay informed about regulatory changes and DeFi platform terms.
- Regularly reconcile your records with your actual holdings for accuracy.
Yes, when calculating taxable income from yield farming, you generally need to account for gas fees and transaction costs. In most jurisdictions, including the United States and Canada, cryptocurrency transaction costs are considered part of the overall expenses associated with your cryptocurrency activities, and they can affect your taxable income.
How much does it cost to get my cryptocurrency calculation and filed?
Basic
Upto 100 Staking or Yield farmingtransactions, no NFT trades, upto 3 centralized exchanges, upto 2 blockchains on Defi, Upto 100 Crypto trades
Expert
Upto 1,000 Staking or Yield farmingtransactions, Upto 50 NFT trades, upto 5 centralized exchanges, upto 4 blockchains on Defi, Upto 1,000 Crypto trades
Premium
Upto 3,000 Staking or Yield farmingtransactions, Upto 300 NFT trades, upto 8 centralized exchanges, upto 6 blockchains on Defi, Upto 3,000 Crypto trades
$5,500
