This month, one of my clients informed me that he has been investing heavily into Bitcoin starting in 2020. He’s made over $20K since October thanks to the rapid interest in Bitcoin. I haven’t seen his transaction report yet, but I’m guessing that with Bitcoin’s high volatility, he is needing to monitor it very closely (daily) and trading frequently. Transfer fees are equally expensive, and so my client is finding that his expenses related to bitcoin trading are starting to climb.
What is the best way to claim his trading on his T1 Tax Return?
Most investments are claimed as Capital Gains/Loss to take advantage of paying tax on only 50% of the gains. Would his transfer fees and other expenses associated with the trading be considered “Outlays & Expenses from the disposition” to offset any capital gains (assuming these expenses can be legitimately claimed this way). Or, is it better to claimed crypto trading as self-employment Business Expense on the T2125 form, where the transfer fees and other expenses would be used as expenses to offset the income made from trading.
I’ve read through the CRA “Guide for cryptocurrency users and tax professionals”
https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/compliance/digital-currency/cryptocurrency-guide.html
I’m thinking that his transactions should be claimed as Business Income because of his daily monitoring, his frequent buying/selling, his desire to make a profit.
Any thoughts?