Are cryptocurrencies considered legal tender in Canada?

With the growing popularity of the different cryptocurrencies, many people are curious to what extent they are legal and usable. The short answer is that yes, you can legally purchase cryptocurrency, but no, Canada does not consider it legal tender. It’s a loaded question that often leads to misunderstandings.

Is Bitcoin legal in Canada?

The Canadian government allows the use of cryptocurrency. So, online and physical stores can accept digital currencies if they choose to. This means many institutes are open to non-traditional payment methods to ease the shopping experience and increase security. Walk into a brick-and-mortar store and wonder if they will accept Bitcoin for payment? It depends on the establishment. Typically, the stronger their online presence, the more likely they will take Bitcoin as a form of payment.

You cannot, however, use crypto to pay your taxes in Canada.

Cryptocurrencies are not legal tender in Canada – Why it matters

While cryptocurrency is legal to use in Canada, it is not legal tender. That’s because the government only recognizes the Canadian dollar as the official currency of Canada; legal tender is defined as notes issued by the Canadian Bank and coins from the Royal Canadian Mint Act. Knowing the difference is crucial for multiple reasons. For one, financial institutions in Canada do not oversee or manage cryptocurrencies. So, apart from being not regulated, cryptocurrencies are also not supported by any central authority.

As a result, the types of transactions for which you can use cryptocurrency are limited. Because cryptocurrency is not legal tender, no one is required to accept it. And as previously mentioned, Canadians cannot use it for paying taxes or making other government-related payments.

The fact that crypto is not legal tender also means that it comes with fewer protections. This means there is no federal or provincial insurance on cryptocurrency like there would be with a savings account that holds Canadian dollars.

If a merchant is willing to risk it, however, they may accept whatever payment they choose, like Bitcoin. It’s a similar case to businesses along the border who take U.S. dollars as payment even though they are not considered the legal Canadian tender.

Why do people continue to buy crypto?

While cryptocurrency is not considered legal tender, there is little doubt that it is here to stay and will increase in value. Because Bitcoin can improve many people’s online experience, it will likely carry over to their everyday life. With the growing inflation of the government-backed currency, more and more people are looking for a better way to conserve the value of their money. Bitcoin is the most secure digital asset, leading to exponential growth in trading the coin. At the same time, anyone considering investing in Bitcoin should be aware that it is also extremely volatile and comes with a high risk of decreasing in value.

Paying in cryptocurrencies

For the most part, businesses can choose what payment they accept as long as it gets reported for tax purposes. However, most businesses, including the government and banks, won’t accept Bitcoin and other cryptocurrencies for payments related to taxes, mortgages, and other bills.

Additionally, some companies help Canadians pay bills using Bitcoin by acting as a middleman. For example, these companies will accept cryptocurrency from the customer and then pay for that customer’s internet service, cell phone service, or credit card bills. In the future, there will likely be more companies that help people use their cryptocurrency to pay for everyday things.

Understanding Bitcoin in Canada

When Bitcoin, the most popular cryptocurrency, first emerged, there was a bit of a shadow surrounding it with gossip about criminals selling their skills for Bitcoin to avoid tracking. But we must remember, like any currency, there will be some who choose to abuse it. Thankfully, much of this shadow has disappeared, and people now see it for the valuable digital currency it is. For all accounts, Bitcoin is here to stay and will continue to grow.

In particular, Bitcoin in Canada is flourishing. Or so we can assume, with companies like Robocoin installing the first two-way ATM for Bitcoin in British Columbia.

In addition, Montreal is home to the only Bitcoin embassy, offering information about cryptocurrency adoption and technology to people. Yet we continue to see hesitation; the Canada Revenue Agency (CRA) released a fact sheet in November referring to Bitcoin as a digital currency and virtual money, distinct from traditional money.

Purchasing Bitcoin in Canada

Because Bitcoin is perfectly legal in Canada, anyone can purchase it. The government even has an official page devoted to digital currencies. It states that Canadians may use cryptocurrencies to buy services or goods at retailers that accept them. Canadians may also buy and sell cryptocurrency on open digital exchanges similar to a traditional stock market. Although it isn’t considered legal tender, Canadians are free to trade, purchase, and sell Bitcoin and other cryptocurrencies where it is accepted to do so.

Taxing crypto in Canada

When it comes to paying taxes, crypto is like any other investment. Losses or gains will need to be recorded on Canadian’s yearly tax return. The Canadian government states that the Income Tax Act and tax rules apply to digital currencies. Authorities affirm that using digital currency does not exempt Canadians. This means that the Financial Consumer Agency requests Canadians report any losses or gains from buying and selling or mining digital currencies when they file their taxes. Resulting losses and gains may be considered taxable income for the taxpayer.

The Canadian government also conveniently offers a guide to help taxpayers declare their cryptocurrencies on their taxes. The most important information is that Canadians pay taxes as capital gains or business income depending on the situation.

To determine the taxable value, you must convert cryptocurrency into dollars. The government lets Canadians choose their method of converting or valuing cryptocurrency for taxes, but it must be consistent. There are several online calculators available to help convert crypto into dollars.

Because Canadians need to report taxes on cryptocurrency, it is wise to keep careful records whenever one buys or sells. These will be necessary when it comes time to file taxes.