How to buy and sell cryptocurrencies WITHOUT TAX!
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Did you know that you can buy and sell cryptocurrency without tax?
It’s not a well-publicized fact, but it’s true.
You have probably already heard that cryptocurrency is subject to capital gains tax in Canada. This means that any profit you make from selling cryptocurrency is taxed at half your marginal tax rate. For direct cryptocurrency holdings, the story pretty much ends there.
But with other crypto products, the matter is a bit different. Crypto products that trade on exchanges can be placed in a Tax-Free Savings Account (TFSA), a special tax-free account that exempts your holdings from dividend and capital gains taxes. If you hold such products instead of directly holding cryptos, you can buy and sell cryptos without paying taxes.
So what is a good exchange-traded crypto product you can buy to take advantage of these tax savings?
Crypto ETFs are trusts that hold cryptocurrency. They trade on an exchange and are legally identical to any stock ETF you can think of. The only difference is what they hold. Instead of stocks, crypto ETFs hold cryptocurrencies. Sometimes they hold diversified portfolios of cryptocurrencies; other times they hold individual cryptocurrencies.
Those who only hold one cryptocurrency are roughly equivalent to directly holding that cryptocurrency. The only difference is that you pay fees to fund managers. This theoretically eats away at your return, but the tax savings you get from holding such a fund in a TFSA can make up for it.
Some good ETFs to choose from
If you are looking to hold a tax-free cryptocurrency, there are many funds to choose from.
One of the oldest is Objective Bitcoin ETF (TSX: BTCC.B). The first Bitcoin fund in Canada, it’s pure play Bitcoin product. The fund managers charge you a 1% annual fee to hold Bitcoin for you. In exchange, you get security and the ability to easily store your Bitcoins in a TFSA. If you make a 50% gain on BTCC.B, the tax benefits of owning a TFSA outweigh the 1% you pay to the fund managers. So, if you are thinking of buying Bitcoin to eventually resell, BTCC.B can be a good way to get your name out there.
Likewise, you could consider Objective Ether ETF. It’s pretty much identical to BTCC.B, except it contains ETH instead of BTC. If you think that Ethereum is a better game than Bitcoin, you might want to consider holding this fund as an alternative to BTCC.B.
Ultimately, it’s up to you which crypto fund you buy. In addition to the ones just mentioned, there are also crypto funds that hold diversified portfolios. These funds theoretically reduce your risk and also give you exposure to smaller cryptocurrencies that have more headroom than BTC or ETH. Sky is the limit. Just make sure that if you’re buying a crypto fund, you’re holding it in a TFSA. This will save you money if you ever cash in on a win.