Written by Andrew Button on The Motley Fool Canada
If you invest in Bitcoin in 2021, you will likely be taxed.
According to the Canada Revenue Agency, Bitcoin is a taxable asset that is subject to capital gains tax. This means that if you sell, 50% of your profit will be taxed at your marginal tax rate.
For 90% of Bitcoin holders, these taxes are just a fact of life. For a while, the opaque nature of the crypto scene provided shelter for those hoping to avoid Bitcoin taxes. It wasn’t easy for the CRA to keep crypto records so they could just keep your holdings secret. That changed recently when the CRA won a lawsuit that forced a large exchange to release customer data. Due to the precedent, the CRA now has the undisputed authority to obtain data on the accounts of the crypto holders.
So there is no easy way to avoid taxes on crypto holdings. You could theoretically hold Bitcoin in a tax-free savings account (TFSA), but most banks don’t allow it. With that in mind, there is a pretty easy way to get some bitcoin exposure in your TFSA and save taxes. By buying exchange-traded Bitcoin proxies, you can earn returns that are highly correlated to Bitcoin. Some of these “proxies” are basically 100% pure Bitcoin games. In this article, I’m going to examine three such investments you can make to keep crypto tax free.
Purpose Bitcoin ETF
That Purpose Bitcoin ETF (TSX: BTCC.B) is a Canadian crypto ETF. Unlike most ETFs, it is not a diversified fund made up of many assets. Rather, it only contains Bitcoin. In return for holding your Bitcoin for you, the fund charges a fee that can range from 1% to 1.5% per year. Now you might shake your head and ask, “Why should I pay such a fee when I can just hold BTC myself?” The answer is tax efficiency. Since BTCC.B at the. acts Toronto Stock Exchange, You can easily keep it in a TFSA and you don’t pay any taxes. You still have the 1% fee, but that’s less than the 15-25% you would likely pay in taxes if you were to sell the cryptocurrency.
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CI Galaxy Bitcoin ETF
The CI galaxy Bitcoin ETF (TSX: BTCX.B) is another pure Bitcoin ETF like the Purpose Bitcoin ETF. It has the same advantages: easy purchase, TFSA tax savings, etc. But it has a unique selling point: a lower fee. While Purpose’s fee is 1.5%, Galaxy advertises with an upper limit of 0.95%. So it can be a better option. This is not necessarily the case, as sometimes funds with higher fees have tighter bid-ask spreads, resulting in lower spread costs. Purpose has a higher trading volume than BTCX, which seems plausible. However, the small fee of this fund is worth researching.
HIVE blockchain technologies
Last but not least, we have HIVE blockchain technologies (TSXV: HIVE). If you really want to get adventurous with your TFSA tax-free crypto games, consider a crypto stock like this one. This is not a pure bitcoin fund like BTCC or BTCX. Instead, it’s a mining company, a company that mines Bitcoin and Ethereum for a profit. It uses low-climate data centers to mine crypto at the lowest possible cost.
Buying something like this is a little riskier than holding crypto directly because in addition to the risks of crypto, you run the risk of the business failing. Still, it’s a tax-free crypto trade worth considering.
The article 3 ways to invest tax-free in Bitcoin! first appeared on The Motley Fool Canada.
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Fool Andrew Button has no position in any of these stocks. The Motley Fool has no position in any of the stocks mentioned.