Bought bitcoin in 2017? Here's how cryptocurrency is taxed in Canada

So, you read all the headlines in 2017 about the millions of dollars to be made in cryptocurrencieslike bitcoin and ethereum, and you took the investment plunge. Maybe you made big money, maybe just a few thousand dollars.

But even though the word cryptocomes from the Greek word for hidden,if you're thinking attax time you can hide that digital stashfrom the folks at the Canada Revenue Agency, you might want to think again.

The CRAand chartered accountants are warning that no matter what your profit was, you're going to have to pay taxes on it by the time the April 30 filing deadline rolls around.

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Self-taught cryptocurrency investor Simon Mills took the steps ahead of time to make filing his taxes easier.

"I tracked all of my trades. And I have a record of all of it," Mills said.

He also did his research on Reddit threads and other social media outlets. As the number of cryptocurrency enthusiasts in Toronto grows, he says there are more resources for information on the new technology that go beyond online forums.

"There's a huge community in Toronto and it's starting to spill into the real world with lots of cryptocurrency meetups and blockchain meetups."

According to the CRA, tax rules apply to digital currency transactions, including those made with cryptocurrencies. Using digital currency does not exempt consumers from tax obligations.

Chartered accountant Warren McCann, a partner at Kudlow & McCann Professional Corporation, saysdealing with crypto clients this tax season was the talk of the office.

"Two years ago we didn't see it at all, now we have multiple clients coming forward indicating they'vemade transactions with cryptocurrency," McCann said. It's been mostly a younger clientele.

McCann sayswhen you sell or exchange cryptocurrencyand realize a profit, you have to report itfor Canadian tax purposes, no matter where in the world the trading platform is, because Canadians are taxed on theirworldwide income.

For most Canadians, this would mean reporting it on your personal return, claiming it as a capital gain,50 per cent of whichwould be taxable.

Records are important

McCann said the biggest mistake some of his clients have made is not keeping track of their trades.

Unlike a broker account with a financial institution, crypto trades are not easily traceable.

"It can be rather complicated obviously. Unfortunately with many of the clients who have done it, they didn't really realize the nature of keeping records," he said.

"It has been a bit of a challenge for them to go back and try to reconcile where the trades are and the amounts."

McCann also notes that trading cryptocurrencies within a tax-free savings accountor RRSP would not be allowed in the existing rules because they aren't defined as eligible investments underCanada'sIncome Tax Act.

"You're responsible as a Canadian taxpayer to keep records and report your income or expenses appropriately."

Tax authorities know about'massive gains'

McCann sayshe's readonline discussions about how to avoid paying tax on cryptocurency transactions. He saysthe risk is not worth it.

"The tax authorities throughout the world are aware of the massive gains cryptocurrencies have recognized in 2017," McCann said. The penalties for not claiming income are serious in Canada, and will add up over several years.

"You might find that most of the gain is eaten away and given back to CRA if they're successful prosecuting you."

For the investors of the new currencies, like Mills, knowing the rules is just as important as putting the time into learning about a new investment.

"It's an ever-changing space, which is why it's so exciting," he said.

"That being said, you need to keep up on things that are changing."