Determining the value of crypto-assets for tax filing
To report correct amounts on your income tax return, you need to determine the value of your crypto-assets when transactions occur.
Determining the value of a crypto-asset
In order to calculate your gains or losses when you dispose of your crypto-assets, you will need to determine their total cost at acquisition using their fair market value.
Generally, the Canada Revenue Agency (CRA) will accept a crypto-asset’s fair market value for tax reporting purposes.
What is fair market value
The fair market value is generally the highest price, expressed in dollars, that a willing buyer and a willing seller (who are both knowledgeable, informed, prudent, and acting independently of one another) would agree to in an open and unrestricted market.
In all cases, you must use a reasonable method for determining the value of your crypto-assets, even when a direct value is not readily available. Generally, whichever method you choose, use it consistently from year to year and keep a record of how it was used to calculate a value. For example, you could choose an exchange rate taken from the same exchange broker you are using or an average of high/low/open/close values across a number of high-volume exchange brokers to determine the value and repeat that every year.
If you hold more than one type of crypto-asset, each type is considered to be a separate asset and must be valued separately for inventory purposes.
For information about keeping books and records, refer to: Keeping books and records of crypto-assets for tax filing.
Example – Determining the value of your crypto-assets
During the year, you made the following purchases:
| Acquisition date | Crypto-asset | Quantity purchased | Fair market value on exchange X | Total cost at acquisition |
|---|---|---|---|---|
| January 1 | Crypto-asset A | 5 | $750 | $3,750 |
| February 2 | Crypto-asset B | 2 | $250 | $500 |
| October 9 | Crypto-asset C | 4 | $10 | $40 |
| Total | $4,290 |
The total cost of your crypto-asset portfolio is $4,290 in Canadian dollars.
Determining the value of crypto-asset inventory
If you hold crypto-assets as business inventory, you need to know the value and cost of the crypto-assets described in the inventory of your business in order to determine the amount of business income or loss that you realized.
Generally, you should use one of the following two methods of valuing inventory consistently from year to year:
- Method 1: Value each item in the inventory at the cost when it was acquired or its fair market value at the end of the year, whichever is lower
- Method 2: Value the entire inventory at its fair market value at the end of the year
You may have to use other methods of valuing inventory, depending on the type of business you have. For example, property described in the inventory of a business that is an adventure or concern in the nature of trade must be valued at the cost for which you acquired the property.
Keeping books and records is necessary to support the value you determine your crypto-assets to be on your tax returns. For information about keeping books and records, refer to: Keeping books and records of crypto-assets for tax filing.
What is an adventure or concern in the nature of trade
An adventure or concern in the nature of trade generally refers to habitual activities that are quite separate and apart from someone’s ordinary occupation and are carried out to make a profit, like buying and selling goods or property.
There is no single criterion to determine whether an activity is an adventure or concern in the nature of trade – all circumstances of the activities must be considered to make a determination.
For the complete and most technical information along with examples on an adventure or concern in the nature of trade, refer to: Adventure or Concern in the Nature of Trade.
What is the cost of acquired property
The cost of acquired property means the original cost of the particular item of inventory (such as a crypto-asset), plus all reasonable costs incurred to buy each crypto-asset.
Example – Determining the value of crypto-asset inventory at year end
During the year, you made the following purchases:
| Acquisition date | Crypto-asset | Quantity purchased | Fair market value on exchange X | Total cost at acquisition |
|---|---|---|---|---|
| January 1 | Crypto-asset A | 2 | $500 | $1,000 |
| February 2 | Crypto-asset B | 3 | $50 | $150 |
| June 30 | Crypto-asset A | 7 | $350 | $2,450 |
| September 15 | Crypto-asset B | 3 | $100 | $300 |
| October 9 | Crypto-asset C | 500 | $1 | $500 |
| November 2 | Crypto-asset D | 1000 | $0.95 | $950 |
| December 1 | Crypto-asset A | 1 | $600 | $600 |
To calculate the inventory’s fair market value at the end of the year, you decided to use an average of high/low/open/close at year end, as represented in the table below.
| High | Low | Open | Close | Average | |
|---|---|---|---|---|---|
| Crypto-asset A | 1000 | 890 | 920 | 980 | 947.50 |
| Crypto-asset B | 350 | 320 | 330 | 345 | 336.50 |
| Crypto-asset C | 8.00 | 7.00 | 7.25 | 7.95 | 7.55 |
| Crypto-asset D | 1.00 | 0.90 | 0.92 | 0.95 | 0.94 |
Based on the two methods of valuing inventory, the following table shows the total cost at acquisition and the fair market values of your inventory:
| Total quantity purchased | Total cost at acquisition | Average fair market value at year end | Lower of cost or fair market value | |
|---|---|---|---|---|
| Crypto-asset A | 10 | $4,050 | $9,475 | $4,050 |
| Crypto-asset B | 6 | $450 | $2,019 | $450 |
| Crypto-asset C | 500 | $500 | $3,775 | $500 |
| Crypto-asset D | 1000 | $950 | $940 | $940 |
| Total | $5,950 | $16,209 | $5,940 |
Method 1: You can value each item in your inventory at year end based on the lower of cost or fair market value, totalling $5,940 Canadian dollars.
Method 2: You can also value your total inventory at the fair market value at year end, totalling $16,209 Canadian dollars.
If you are involved in an adventure or concern in the nature of trade you should value your inventory using the total cost at acquisition of $5,950 Canadian dollars.
You must use a reasonable method for determining the value of your crypto-assets, even when a direct value is not readily available. Whichever inventory valuation method you choose, it must be used consistently from year to year.
For more information about determining the value of inventory for tax purposes, including the special rules for an adventure or concern in the nature of trade, view our archived content on Inventory valuation.