Staking and Yield farming Accounting and taxes

Simplify Recording, Organizing, and Reporting Your Cryptocurrency Rewards

Are the proceeds from Validators, Staking and Yield Farming taxable in Canada?

In the context of Staking and Yield Farming, any rewards earned may be subject to Canadian income tax if the rewarded coins possess an open market value and these rewards are considered to be in the taxpayer’s possession. Furthermore they have the ability to trade or sell these rewards in an open market. If the rewards subsequently rise or fall in value the change in value will be realized when the coins are disposed or traded.
Bitcoin with Piggy bank
Working desk with white theme

How can TMP assist with Crypto rewards from Staking and Yield Farming calculations?

Hand holding bitcoin

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

Staking and yield farming rewards are considered erned when they are in the possession of the recipient.

Income Amount

The income amount is determined based on the market value of the coins at the moment they are rewarded and become accessible to the beneficiary.

Adjusted Cost Basis Calculation

 To calculate the adjusted cost basis, you sum the value of all holdings based on a weighted average of the coins’ values at the time they are received.

Sale of Rewards

When selling staking rewards, gains and losses are calculated as follows: Subtract the proceeds of disposition from the adjusted cost basis of the rewarded coins.

Losses

If the rewards decrease in value when you sell them, you may be eligible to deduct this loss from your taxable income.

Possession of rewards

If the rewards have not changed possession and the tax payer does not have control over the proceeds, it may not yet be considered income.

What documentation and records should I maintain for tax purposes?

Why Us

Financial Education

We prioritize educating our clients, equipping them with the knowledge to make sound financial decisions for their future success.

Seasoned Experts

Our experienced team offers deep expertise, ensuring reliable and comprehensive solutions for all accounting and tax needs.​

Personalized Solutions

Tailoring our services to each client's unique circumstances, we deliver customized solutions that address specific goals and challenges effectively.​

Modern Approach

Embracing cutting-edge technologies and innovative methods, we provide efficient and forward-thinking accounting and tax services to meet the demands of today's business landscape.​

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.

  1. Use cryptocurrency portfolio tracking software to monitor your DeFi transactions automatically.
  2. Manually record all transactions, labeling them with details like date, amount, fees, and type.
  3. Take periodic snapshots of your portfolio and account balances.
  4. Keep track of the cost basis of your assets, including transaction fees.
  5. Consider consulting a tax professional for accurate accounting and tax compliance.
  6. Secure your transaction records and stay informed about regulatory changes and DeFi platform terms.
  7. 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

$1,300

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

$3,300

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

Custom

Fill in this questionnaire and we’ll get back to you with a quote.

Next Steps

Step 1

Please fill in this questionnaire

Step 2

Schedule a consultation with one of our CPAs to receive a final quote and a checklist of the required data

Step 3

Upload requested data onto cloud folder shared

Let’s collaborate!

Have a question, an idea, or just want to learn more about Triple M Professional Corp.? We’re all ears. Fill out the form or Email us and we’ll connect with you soon.

Markham Office
905-237-6424
675 Cochrane Dr East Tower 6th Floor, Markham, ON, L3R 0B6
Toronto Bay Street Office
416-333-1116
401 Bay Street, 16th Floor Toronto, ON, M5H 2Y4
San Francisco Office
415-366-5667
590 California Street 16th Floor, San Francisco, CA 94104
New York Office
212-651-9101
555 Madison Ave 5th Floor Manhattan,
NY 10022
Toronto King Street West Office
416-333-1116
100 King Street West, Suite 5600, Toronto, ON, M5X 1C9
Markham Office
905-237-6424
675 Cochrane Dr East Tower 6th Floor, Markham, ON, L3R 0B6
Toronto Bay Street Office
416-333-1116
401 Bay Street, 16th Floor Toronto, ON, M5H 2Y4
San Francisco Office
415-366-5667
590 California Street 16th Floor, San Francisco, CA 94104
New York Office
212-651-9101
555 Madison Ave 5th Floor Manhattan,
NY 10022
Toronto King Street West Office
416-333-1116
100 King Street West, Suite 5600, Toronto, ON, M5X 1C9