Should Canadians adjust their Koinly “settings” to: Treat Airdrops as Income? (“ON”)
or turn that button to the “OFF” position and NOT treat airdrops as income.
What is the correct answer?
Below are some excerpts from my replies to similar questions posted by Canadians in the last few days in the Support and Tax sections:
Question: Should the value of airdropped tokens be treated as taxable income in Canada.
Reply: CRA has not provided any specific guidance on airdrops. Here is the relevant excerpted advice from Koinly’s Canadian tax guide (with which I agree):
How are airdrops and forks taxed in Canada?
The CRA has no specific guidance on how airdrops and forks are taxed in Canada - but we can infer their tax treatment from their guidance on what is considered business income. Forks and airdrops are unlikely to be taxed as income on receipt, but you will pay Capital Gains Tax when you later sell coins or tokens you received from an airdrop or hard fork.
Receiving an airdrop
The Canada Revenue Agency is unlikely to view airdrops as a type of income, as long as you’re seen to be trading as an individual and not as a business.
However, you will pay tax when you later spend, swap, gift or sell coins or tokens received from an airdrop.
If you haven’t provided a service to earn an airdrop then it is really just a gift of the airdropped tokens. In Canada, recipients of gifts are not taxed on the value of the gifts when received.
Question: How should an airdrop transaction be recorded if it is not taxable income but is subject to capital gains treatment?
Reply: You have a couple of options.
Option 1 - You can go into Settings and turn off the feature named Treat airdrops as income? This will result in your airdropped tokens (if tagged as Airdrops!) being assigned a zero cost base for capital gains calculation purposes. This is consistent with advice in Koinly’s Canadian tax guide that the cost basis of airdropped crypto gifts is $0 such that all future value realized on ultimate disposition is subject to capital gains tax.
Option 2 - Elsewhere in Koinly’s Canadian guide they say that the cost basis of crypto received as a gift is the fair market value of the crypto at time of receipt. I prefer this approach so I have been tagging airdrops as Deposits and letting Koinly set their cost base value if there is a quoted market price. If there is no available market price then you may have to value the gifted tokens manually to set your cost basis.
Hope this helps!